Is there a case for the discontinuation of the IG Agreement? (part 4)

In its 2017 report on the P&I Clubs, broker Jardine Lloyd Thompson asked all of the clubs a list of questions. Here are the responses of Swedish Club, UK P&I Club and West of England Club to one of those questions. Over coming days IMN will be printing the responses of P&I Clubs to other questions.

Q: Is there a case for the discontinuation of the International Group Agreement, the restriction on price competition between the IG clubs? It is argued by some that, in view of the significant increases in the attachment point of the pool IG itself, now USD 10 million, the case for protecting the operation of the pooling system is outweighed by the need for pricing of mutual P&I insurance to reach a true market level. This, proponents argue, will expose inefficiencies and foster a market rationalisation that the failed merger between Britannia and UK Club might otherwise have heralded; to the benefit of P&I club members overall.

Swedish Club

The Swedish Club said that all clubs believed that an IG agreement was necessary to underpin the pooling agreements to set standards for trust, mutuality and competition.

UK Club

UK P&I Club said that the many benefits that arose from membership of the IG had a concrete value to shipowners (including meeting shipowners’ certification requirements, providing guarantees to release ships from detention, collective reinsurance purchase, claims handling, loss prevention guidance and collective lobbying) that needed to be taken into account when considering pricing. “Otherwise any comparison is misleading.”

The Club said that it was not the case that the IGA eliminated price competition. On the contrary, it was designed as a light restraint and members are generally adept at arranging their insurance affairs so as to ensure they receive competitive quotations within the constraints of the IGA”, the Club said.

West of England

West of England said that the benefit to shipowners of the IGA and especially the pooling of claims should not be underestimated. The Club said that it was “a fallacy to believe that, if the IGA were removed, clubs would happily continue to pool their large claims as before”. The Club said that a loss of pooling would have a direct and material impact on the breadth and amount of cover clubs would be able to offer to the world’s shipowners.” Far from providing a panacea of lower premiums whilst retaining all the benefits of the IG, removal of the IGA would swiftly result in its demise”, West of England said, noting that “no meaningful enterprise between independent competing businesses can operate a common system without a set of rules that govern behaviour and ensure fairness”.

West of England said that the JLT argument also mischaracterized the IGA as “some form of draconian restriction on all competition when it is, of course, nothing of the sort”. West of England said that IGA represented a light restraint on pricing which all clubs accepted was vital for the continued operation of the pool. “Its existence has not diminished the vibrancy of competition between clubs for new business”, West of England concluded.