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Hello and welcome to another episode of the Odd Lots podcast.
I'm Tracey Alloway and I'm Jill.
Why isn't thal Joe.
You know, I'm slightly obsessed with insurance. Maybe obsessed isn't the right word, but fascinated. Appreciative of insurers because I think there's a tendency to think of them as sort of limiting factors in the world. So, you know, if you can't get insurance in California, you can't build a house. But I also think of them as enablers of certain behaviors, right.
I think that's a really good way to put it. People do a lot of things that they wouldn't otherwise do were they not able to get insurance on it. So, yes, it does cut in both directions, so we should appreciate the existence of the existence of insurance. All right, Well, now, surely you know what my daughter actually.
Your daughter has insurance.
She well, she asked me to explain insurance the other which I was like, you know, and then suddenly I was like, I have to explain it.
Wait.
First of all, tell the listeners how old your daughter is ten.
I was trying.
I can't remember the context exactly what it was, maybe something about fire insurance, et cetera. But I think I was actually pretty proud of myself. I was basically like, there are these risks that happen where like, save your house burns down, you could like ruin you financially, but it doesn't make sense to like save all that money in cash and always have that much savings available to be able to rebuild your house. And therefore the way you solve it by paying a small amount. I wasn't
pretty like happy. I think she got it.
I'm glad she's planning for home ownership at your early age. Okay, well, now is a really good time to think and appreciate insurance because, as you know, we are recording this on April eighth. I feel like, do I need to say the hour? Maybe I do twelve oh six pm on April eighth. It is not entirely clear at the moment what is going on in the strait offore moves. We don't know if ships are being allowed to pass or not.
But we do know since the earliest days of this entire conflict happening, that one of the issues that's come up is war insurance and maritime insurance in general.
Yeah, and we sort of like touched on it in our very first episode that related to the war. But of course one major reason why ships haven't been moving through is the direct threat being attacked and sinking. But then another element is the entire insurance element, and then beyond that, like that adds costs to everything and it's not you how do you price war insurance? Have no idea, So I have many more questions on this topic.
Yeah, the whole ecosystem of maritime insurance in general. You hear these things thrown around, like whole loss protection and liability protection, and there's the reinsurers, and then there's the normal insurance, and then there are insurance clubs.
Right there are all these.
An insurance you belong to the SOHO club. Me I blocked to an insurance club, like.
You kind of have the club jacket thing jacket today at the moment, Okay, well, we do, in fact have the perfect guests to talk about all of this.
We're going to be speaking with Dorothea Yanu.
She is the chief executive officer of the Managers of the American P and I Club. So amazing you can ask her if you can join as well as well.
I need like one, I need one member to endorse me and another one. That's how it works, all right.
Well, the second member who could potentially endorse you is Steve Oglukian. He is the reinsurance director at the American P and I Club. So truly the perfect guest. Thank you so much for coming on all thoughts.
Thank you for having us. Thank you.
Why don't you go ahead and tell Joe what is an insurance club and can he can he be part?
Okay? Great?
First of all, I love that you talked about insurance. Especially from our perspective. Clubs we're enablers. So what are clubs? Clubs?
In our context?
The P and I Club, which means Protection and Indemnity, is a collective. It's a not for profit, accessible mutual association. It's not a commercial insurer, and it basically, historically is a club that brought together ship owners in the industry that we're trying to fill a gap. So they came from a need for society. And really what clubs do is while they ensure the owner, they are protecting society
because they are ensuring the owner. For what you refer to before as liabilities, so that would be like losses or damages that they cause to other people, not to themselves. So the clubs never pay own damages. We will not pay damage that occurs to the vessel in an accident or if they have economic loss, their own economic loss.
So what P and I clubs do is they step in and they protect the owner and defend the claims, but they ultimately pay whatever is the fair compensation or whatever is adjudicated for passengers that perhaps get hurt on the ship due to negligence of the ship, claims from a crew that might get hurt in an accident. Liability is related to collisions, So if the ship hits another ship and they cause damage or personal injury to people or crew on the other ship, they'll pay that oil pollution,
environmental damage, so clean up related to that. So basically, the way we like to think about P and I and you really should think about it like this.
It's the safety net and it is the only.
Way that a ship can trade. So for example, let's look at what you do with your car. Right, you're not allowed on the road if you don't have liability insurance. Right, you don't have to have own damages insurance, right, Yeah, but you do need to have liability because we need to know that all the cars on the road have financial security behind them that if something happens and somebody else gets hurt, there's a compensation that's going to come from somebody that's responsible.
So that's the concept. Let's say of a P and I club.
And you mentioned that it's structured as a nonprofit. So I take it that you're doing this just out of the goodness of your heart. No, that's a joke.
But talk to us about, like, then what's the concept behind it?
Well, so like why is it that? And then who is bearing your risk for which they're taking the profit?
Okay, so let's go a little bit to the history of it so you can understand it. So basically, if you go back in time, let's say, up until the eighteen hundreds, up to a certain point, there was no liability for most of your marine liability insurans. As things started to change and they started to impose strict liabilities, regulatory changes started to happen in various countries, Passenger liabilities started to increase, and also the liability started to get
a lot more volatile. Your regular commercial insurance did not want to touch it, they couldn't price it, they didn't want to deal with it. And also your classic policy would have a limit of the value of the ship, and a lot of times liabilities would exceed that. So what happened was the shipowners came together to say, well, we can't allow like you said before, you know, number one, you can't put all of this money aside until the
time is needed. And you also can't risk becoming financially destitute right in the instance that you have a catastrophe. So the shipowners came together and said, let's pool our risks. So then not for profit element is this. So the concept goes to, in principle, we each put a certain
amount of money into a pool. It's based let's say on factors that they agree club members they have to be shipowners, by the way, so if you do have an ocean going vessel, we could consider making you a member to say, so there's a formula or an underwriting formula where everybody pays a certain rate per ton, okay, And then dating back from the beginning of time when they started this, if all of the losses were less than the amount that they had put aside into the pool.
Then they could either have it returned or they could save it for the next year and pay less the next year, and each year there would be a reconciliation. But if the losses were more, they each had to put in you know, pro rata based on their tonnage and based on the formula. So that's the concept of not profit now. Of course, back then regulation wasn't the way it is today. So now you're not allowed to just keep enough to pay your losses. So now there's
regulatory requirements. So now the not for profit is kind of increased to you need to be healthy not for profit, so you have to meet certain solvency ratios under regulation. So that's the concept. So I don't know if you wanted to add anything.
Ultimately, it's providing at cost insurance for the members of the club. So like you said, you want to join the club. If the four of us have vessels and we want to form our own P and I club, you could theoretically do that, pull our money together, as Dorothea said, and say hopefully it's enough.
To meet the claims for the year.
If not, we're fine putting in more but it's better than going through commercial underwriter who's going to charge double that because they need to make a profit and they don't want to take a loss.
So it's kind of like self insurance.
Right, So it's kind of like self insurance.
You might think of something that exists at the firm level, and this is self insurance kind of at the industry level.
Right, exactly, right, exactly.
So one of the things that comes up immediately if you type in American P and I Club into Google is it says it's the only americanan club. There are a bunch apparently in London. And actually I would like to talk about how London became like a big insurance capital in general, but why is there only one American insurance club.
Okay, well then we'd have to go back and talk about how the American club was born, right, So yeah, So historically the origins of organized insurance really are into the financial center of the London market actually started I think with REMIAMEI st with some brokers in a coffee shop in London that you know, started to decide well, you know, we actually it's the same concept of how the clubs developed, but at the more fundamental level of the basic well, we don't want to risk losing the
cargo or the ship en route. So you know, underwriters were kind of born through that process, but the American club actually was born much later. So the American operators historically were insuring with the London clubs. And then nineteen sixteen, the Americans were not in World War One yet, right, the UK was, So the UK at that time passed what was called the UK Trading with the Enem Act, which basically says, you know, if you are, you know,
trading with my enemy, then you're my enemy. And at that time the United States was not in certain American operators were still involved in certain types of trades, and the UK then this act prohibited a lot of American operators from continuing to have their insurance with the UK clubs at that time.
So back then, I.
Think was the largest US broker, Johnson and Higgins, I think at that time came together with shipowners, industry, lawyers, and lobbyists and legislators and realized that they were going
to have to create something in the United States. And I think that this it's very interesting how it's kind of very timely of what's going on in the United States right now, because we're seeing that, you know, in terms of our peers, in terms of other countries, even our allies or even non allies, we've kind of fallen behind on the maritime side, right so in the industry, like we used to be the number one maritime nation
in the world, and now we're definitely not. And so they came together and they surveyed the American opers to see would you be interested and would you join an American P and I club that would fundamentally work the way the London clubs would already work. And they got a lot of favorable response, and then within the year they had enabling legislation in New York State which created the structure because it didn't exist before that and needed
to have a regulatory structure. And on February twentieth, February fourteen, sorry Valentine's Day, nineteen seventeen, the American Club was born. And since then it's not an easy thing to put together a club, you know, because you have you start from scratch, really, and so since then we have been the only club, and we've brought we've taken the United States through two World wars since then, but also been a part of this whole ebb and flow of the American maritime industry.
Yeah, and I was gonna.
Say, that doesn't mean that our members are only American now, so historically.
Explain this, Yeah, so explain why that it's just.
The name now is the American Club.
Then you have the Swedish Club, you have the London Club, you have the japan Club.
But there were members who are.
Global, global, all over the world, right, So I would say maybe thirty years ago we were probably eighty percent, maybe even more.
Yeah, in the base member the nineties we went more of a global station effort.
In the nineties.
How do ship owners decide which club to be a member of?
A lot of it's service oriented again, who you know, right? Do you have a friend who owns a ship and he's I'm with the American Club, I'm with this club, have a great experience with them, close with the tam handlers, underwriters. If I need something, they pick up the phone, I can talk to them. I'll make the introduction. So it could be as simple as that, or some people just go on Google and say I need to join I
need P and I insurance. Where could I go and maybe if they're American, they see American.
And is there like a maritime insurance comparison site where you get all the different rates or something like that.
Yeah. No, But there is an international group of B and I clubs.
I don't know, Steve, if you want to talk about that, how that works.
So there's collectively now there's twelve international group clubs known as the International Group of P and I Clubs. Collectively we ensure ninety percent of ocean going tonnage. So being a member of one of those clubs it effectively the same way the clubs work together.
They pool risks. The group works.
Together in the same way. So being a member of the International group it allows you. And there's a few core functions of the IG. As the reinsurance director selfishly, I'll say the most important is the reinsurance purchasing power that the group clubs have. So collectively, the twelve clubs come together every year and they purchase policies. I think
it's the largest reinsurance policy in the world. There's roughly eighty five separate reinsurers on this various points of the world, and we ensure risks up to what we provide cover about for about eight billion dollars per incident, but we buy reinsurance collectively with the other clubs up to three billion, so it's fairly unique because they are competitors of ours. But together we realize the best thing for an individual shipowner is to have this group purchasing power and allows
us to buy high levels of reinsurance. It's pretty pretty an expensive cost.
It's so interesting because I guess, like insurance per se, it's all about pooling right.
Risk.
So I certainly want to get more soon to like the sort of the role of this P and I insurance within the context of the war right now and so forth. But one quick question. I have you mentioned that entities contribute based on their tonnage? And you know when I when you use the driving insurance analogy to talk about liability, you know there are various factors that go into how much, how old are you if you take a defensive driving, how many tickets you've gotten, et cetera.
Why is tonnage, which is not a metric that would suggest risk to others in my mind, an important proxy.
No, it's not that it's not a risk factor.
It is how we multiply the rate is per ton, but the rate per ton comes from all of those risk factors.
I don't know if Steve you get it.
Yeah, so what might be one dollar a ton, somebody else to pay two dollars a ton, so we may five dollars a ton.
Oh so it's not that there's like a fixed prote no talk about I mean of got it?
Not all tonnage is yes, exactly right.
So if you have a small barge, since that doesn't have any crew, it's just carrying coal up and down a river, versus a large cruise ship. We have multiple crew members and passengers on there. You know that one ton, if you will, on each vessel is not the same.
So they're gonna get you it priced differently different. Okay, it's just really about it's not.
About it's just a measuring tool. Yeah, it's just a measuring tool. But like let's say you have the same sect, you have the same type of ship, a lot of the same factors. The smaller ship's going to pay less than the larger ship simply because of the tonnage. Let's say, so they might both be charged at five dollars a ton, for example, but because also that is also a factor in assessing limitation of liability.
Do the clubs play a role in like ensuring training of the crew and things like that that would be proxies for safety.
Well, this is going to be my question because one of the other reasons we appreciate insurance here is because like they're arbiters of behavior, right, and especially at a time when a lot of governments seem to be, you know, stepping back from certain markets. It's often like the private insurers who are saying, like, this is what you need to do in order to get insurance. What are the requirements for ship owners in order to be eligible for club membership?
Great? Great, that's a great question.
So one, there are a lot of requirements, and yes, loss prevention is a big thing, and that also differentiates us from commercial andre As you go to the website, you'll see whole section and loss prevention.
So we do look at the quality of the operation.
We do look at the experience of the people that are running the management. There are warranties as well, so number one, you have to be of a technical level in terms of quality. So that we're going to get a little bit complicated here, but okay, so ships are also subjects to other requirements independent of the club, and that's subject to the requirements of their classification society. So the classification society are like the surveyors, the technical arbiters.
Let's say that comments and make sure that the ship is of certain quality technically, so you have to be in we call it in class is what we call it. That's definitely a requirement. And then of course we also require that you are conducting only legal trade, so that is another aspect of that. I will hand it over to Steve to add other aspects.
On the underwriting side, the main I.
Mean, we do management audits as well, obviously, so we bring because sometimes it's a startup, right, which is tough because there's no history there to see where they've been. Ideally, as an underwriter, you're looking at a client who's been with another club and is looking to switch. So they come over, you see a loss record, you have a pattern, you know where they're operating, what they're doing. When it's
a startup, it's a bit more difficult than that. Where will go out And again sometimes it could just be proactively, we haven't met this member, Let's see them in person, what they're up to.
Get on their ships with other condition surveys.
Yeah, from that perspective, quite often we would do a conditioned survey.
So we would do in that case like a pre entry condition survey where if the vessel is older than ten years of age, we'll say we need to see it even though it's in class.
We just want to make sure that from a P and.
I perspective requirements that there's certain.
Things that check all the boxes to come into the club.
Wait, what actually constitutes risky behavior on the part of a ship, because again, if we go to the driving analogy, like okay, speeding is bad, that would be risky. Driving drunk would be very bad.
What's equivalent.
Well, no, other thing that we look at is the history and the claims record, right, so we would see the incidents and the types of incidents. So if we see patterns or trends, a lot of times it has to do with their trading. So certain trades might be a little bit riskier than others, and that just comes from our actuarial analysis. So each club also takes their portfolios and analyzes the trends on the claims and you'll determine the levels of risk and your risk appetite with that.
So like, for example, our experience has shown us that container ships have certain types of risk that might not be the same as others.
So while some people might.
Look at a containership and say, okay, well they do liner business, so they're quite organized, right, They're quite sophistical, so going from one port to another often right, So that means that they're very familiar with the two ports. The people are very familiar. The approach of management is quite sophisticated. And then you might look at it from a risk perspective and say, okay, how much are each of the containers worth in case there's an accident they fall,
But you have to think bigger than that. So, for example, if there's a casualty on a container ship and it's a total loss in any seaway in any ocean in the world, the catastrophe risk is much different than let's say a bulker that might sink or a tanker, because those individual containers, for example, will start to pop up and float to all different places on all different coasts wherever whatever is adjacent to the sea that it has sunk, that it's sank in, in which case, though part of
the liability includes cleaning those all up, and those types of containers are considered hazardous waste, so there's a special disposal process that has to go can be quite expensive. It can also cause danger to navigation in seaways.
So you see what I mean.
Really, you look at the type of ship that you're looking at, and you look at the type of claims that it might that can possibly arise. But we look mainly, Steve I would say at we look at industry, but we look mainly.
Each club will look.
At their own experience and decide that, you know, what they classify as behavior. We look, we analyze claims, and we learn from the claims to decide what we're willing to tolerate and what we're not willing to tolerate, or what we're willing to tolerate. But we're going to charge a lot more, for example, because the risk is higher.
I don't know if you wanted to add I.
Was going to say a lot of it too, is human error.
So you could do all these actual, a real studies and say that this vessel operating in this region is likely to have x amount of claims per year, But you can't account for a crew member not sleeping or being or falling asleep at the wheel basically and causing an accident which has happened. So a lot of its human error, not being trained properly. Small things. I mean, as P and I ensures, people look at us and think large oil spills, reck removals, the big headline claims.
But our average claim is about twenty or thirty thousand dollars per claim, so it could be a small crew claim, cargo claim. So these are the things that add up and determine how a P and I club is operating, not so much to one off big incident.
Yeah.
Sorry, I just wanted to add one more thing going back to the original question that you post in terms of what is our role in terms of training, let's say, or loss prevention. So while we are not the primary people or group that's responsible for training crews, because there's crew managers, the operators themselves.
Have to do that.
The training that they get in the schools that they go to and stuff are really what we do though, is based on our analysis of our claims. Though we identify gaps, we identify issues, we identify trends, and then we do actually have programs that enhance training. So from whatever they're doing, we will add things. So you'll look on our website and you'll see that we have regulatory training that the owner can use to actually track the training of their crews that make sure that they know
certain minimum standards of the regulatory knowledge. Let's say, are they familiar with how to handle like the collision regulations for example, and other types of modern regulation for navigating.
Navigating at see.
We've also done vlogs, We've done interviews, we do seminars, and then we also do like a good Catch series, so you'll see that we take our cases and we analyzed near missus and then we identify what our owners and their crews and their people are sure can do better in order to prevent that in the future.
So I have a personal question, which is this is kind of Oddlot's lore, but I'll repeat it for people that don't know the story.
But many years ago, I guess four years ago or so it feels longer.
Okay, four years ago, my furniture got stuck on a container ship called the ever Forward that ran aground in the Chesapeake Bay. And I think an investigation found that the pilot had been using his phone or something which is kind of crazy to think about. I didn't see any insurance pay out from that. I know my property wasn't like actually damaged, but it was kind of annoying not having a couch for a couple months or however long it was. If something like that happens, what is
the actual distribution of the insurance payout? So who does it actually flow to ultimately, Like does it eventually reach the customer who's shipping stuff on these ships?
And there's not like a straightforward answer. There's a lot of dependencies that go along with that, and it has to do with the contract that you have right and the various insurances that are placed. Now to a certain extent, there has to be a certain limit on what could be considered too remote, for example, and under certain regimes you would probably have to have physical damage in order to be able to claim the economic loss related to that.
That is probably the reason why a lot of times when you ship things, they asked you want insurance so you can so you can insure yourself, because there's no guarantee that ultimately that will get up to the P and I club, for example, because it just flows into contractual liabilities.
I sink under that.
The a shipper would have cargo insurance as a whole to get from point A to point B. And obviously part of that is it's going to be on a vessel most likely. So if the ship owner is negligent and they're found liable for that loss, so like you said, he was on the phone, vessel grounded, then the cargo underwriter would go after the owner, which ultimately gets covered by the P and I clubs.
I see, by the way, I'm on your website, and you guys have some great posters, these safety posters that people should go check out.
They say, don't be on your phone.
Yeah there's one. Yeah, there's one. Yeah, there's one that's I kind of want to get one of these framed, like from my house. They're really cooler thing. I'll blow it up. But like there's a feed your focus on shut off personal cell phones. I see you guys. You know it's like safety stuff.
Check will go out to all our members.
Yeah there's I'm saying. But also listeners should just go out and download these because they're pretty cool looking.
You know. We also sorry, just so you said that something that could also apply to people not in the maritime industry. We have a whole series related also to like sexual harassment that creates awareness for you to understand what that means. That simple things that even based on certain cultural or even habitual type of behaviors that can be considered sexual harassment creates awareness for it. It's a really fantastic.
Yeah, there's a lot of good Uh, there's a lot of good resources here. All right, let's talk about like the context conversation within the war in Iran and the reason I mean, yeah, the issue to my mind is like, Okay, so are you affected by it? Because when I think about the situation, I'm by and large not thinking about risks that ships are going to pose to others in the context of war as opposed to risks to the ship. So like, talk to us about like the degree to.
Which, for your guess and I okay, is a.
Factor or the around war is a factor in the world of piano insurance.
Well, I'm going to give you the big picture and then step will analyze it. It will break it down.
So traditionally, war has its own special sector.
Of war underwriters war insurance.
The p and I standard policy excludes liabilities that arise out of war acts. However, there is an excess level of cover that is offered by the P and I club, simply because the standard policies are limited by the value of the vessel.
I'm going to hand it over.
We've been talking about P and I and libility. Yeah, but if you're a ship owner, so you come to us for your P and I insurance, you go to a hull and machine underwriter for hull and machinery for the vessel's value that's on the ship, right, So you have two separate towers of insurance. So we cover the liability, they cover the hull. But because we exclude war risks,
it's traditionally offered. There's a few places they could go. Traditionally, the hull underwriter, we'll give you war risk cover for P and I and hull up to the value of the ship. So if you have a ten million dollar ship, you're insured. So that ship sinks, it's a total loss for ten million underwriter, you know, yeah, rights, you would check there's a pollution element. They'll cover ten million of
that loss as well. Okay, so that should traditionally P and I. But because we excluded the whole war.
Underwriters, if a ship is sunk in the war, then there could also be a liability on the part of the owner for the pollution caused by their own ship potent.
It depends.
There's a lot of nuances to that too.
It has to do with also convention that there's certain international conventions that exclude if it's subject to war, but then there are certain national legislations that carve that out. So it depends on where you might where it might happen.
So just to be clear though, like when you talk about like you said, there's a war exception or you don't cover war.
We don't cover it. The standard primary would exclude it.
But why would P and I ever include war risks? Because the question is like war, to my mind, is not what.
If a crewper what if a crew member dies?
So that is okay, I see, I see okay, So this is really important. So the a crew member's death in a war would be or a crew member's death would be P and I right, But you don't in a war that you do.
Not correct unless got it.
And on top of it, so we mentioned pollution, we mentioned crew wreck removal would be one. So you know, vessels going through the Strait there's minds if it were to sink, and it's a wreck, and it's in a shipping channel essentially, and let's say the conflict ends, Well, now you have a wreck there that needs to be moved. So P and I clubs would have to step in and remove that wreck, which will cost a lot more
than the value of the vessel. So what the P and I clubs do you offer is what Darthey mentioned, excess insurance, so excess of the hull's value. Knowing that a record pollution event likely not crewe, but you know a larger loss could breach ten million or whatever the value is. But in this example ten million, you've breached that threshold. The P and I Clubs, as part of our collective reinsurance buying, we buy reinsurance for war P and I and every ship owner who's entered in any
IG club every year pays a small amount. It's not allowed, but they pay a small amount for that coverage, so we fill that gap.
So, just to be clear, just to spell this out, in a war, you do not provide war insurance. The vessel would go to some other commercial carrier and they would have that in place, and they would have that, but the P and I club does offer this excess based on the reinsurance purchasing power beyond what the commercial carrier may offer.
And effectively we're buying it on their behalf. Yeah.
Guy, So I have what might be a dumb question, but like why are all these different risks so bifurcated between different players?
Like why is there a separate whole protection.
Provider a war WHISP If I'm buying home insurance for the most part, like I just go to an insurer and it's like, Okay, we're going to cover your roof damage as well as like whatever else might happen. I don't have to go to three different insurers for the most part.
Yeah, I think it comes out of exclusions.
So originally the hull under writers didn't want to offer coverage for liabilities because, like Dorothea said, they didn't know how to price it. It wasn't their forte so there was cover, right, Yeah, I see. So P and I clubs were born out of that. So now you have a club and what do you want? You want some kind You want to be able to project what your claims will be in a given year. So the club members are ensuring their themselves or each other for what
i'll call predictable risks. Right, going from port A to port by with a certain cargo, accidents happened. But if something is a little more specialized, So if you have a vessel operator who's involved in drilling and production operations, that would be excluded as well, because that's not a mutual pullable risk because that might be a one off where you may be doing that with your vessel, but the three of us may be saying, who wha, whoa, we don't want to cover that. Yep, that's a complete
different risk. So war falls into that makes hard to predict. So the P and I underwriters excluded war traditionally, and now created there's war clubs or all would step in and offer limited war cover.
I mean it's important to keep in mind too that like war risk is not actually stable, right, It's not like the rest of the risks. It's really just subject to you know, geopolitics and you know national relations, you know between countries, and it's just.
Based on that.
Whereas most other types of insurance is actually stable, not always predictable, but actually you can analyze it.
They can't really do that for war.
And then one thing I think is important to note, and this has been a topic of discussion I think on the war side, is that during the year in peacetime, it's very cheap. Okay, it's very cheap. And so I know that there was a lot of talk about the cancelations and stuff like that.
It's really they have to do that.
Because they're not underwriting based on the ship's transiting war areas. They're underwriting based on trading in peaceful areas. So once an area then becomes subject to a war Act, they do have to be able to re rate that. And so even though they gave a notice of cancelation that.
These are the headlines we see the public saying that like war risk insurance has been pulled right at the start of a war, which was very confusing.
Yeah, yeah, yeah.
Yeah, I was getting Instagram reels, said to me, people trying to explain it and complete misconception. And when you're getting reels on P and I insurance, you know something big is going on.
Yeah.
I don't know if you want to explain why the P and I clubs had to give that notice that we get because everybody said, oh, the P and I clubs are canceling war. We cover war, but in certain instances we do. Why don't you explain where we cover it, right.
Just to kind of back up a bit, and what the cancelation means. It's really a cancelation of the rate, not of the cover. So everyone was saying, oh, these vessels are trapped because they don't have insurance, and you know Lloyd's in London is almost doing this to get back to the US. First of all, all those not all, but many of the underwriters at Lloyd's are American companies. So it wasn't the UK saying, you know, we're going to get the US back for this. We don't support
the war pull insurance coverage. The vessels are trapped. That's not the case. Every war policy, even though we're not war experts or war underwriters, the way it works, every war policy hasn't notice a cancelation clause saying if basically, if a war were to break out like you have here and vessels are now in the Gulf, well we didn't price for that. We gave you a cheap rate
because you're sailing around the world. Now you're in a war zone, the risk changes, so we cancel your policy and meaning we cancel the rate you paid, give you three day notice cover if something happened. So if you're struggling, you're still covered, right, but now after that three days lapses, you have to buy your cover back at a higher rate based on if you're training.
There, you're not you at all. Yeah, so if you're trading there.
So that's what those are the headlines to notice the cancelations.
So it looks like this is so helpful.
Yeah, but why the P and I clubs give a notice?
Right?
So and I confused, our mutual risks were not. So anything that's pulled and has this excess war was not impacted. We also offered cover to charters, so not just ship owners. If you're chartering a vessel.
And do we know what a charter is for?
Okay, charter it's kind of like when you lease a car, you're kind of it's like you're chartering it.
You're paying something to use it, okay, and the owner is liable most of the time for big oil spills, reck removal, whatever it maybe, but a charter could be found liable for some of this. So a charter is risk because it's not pulled within the IG and there's separate reinsurances for that that includes war so that's always been a pass through. So well we will include Charters
P and I war cover. And because we received a notice of cancelation from our reinsurers, we tell them we have to cancel your war cover in the Persian Gulf, but give us two days and then we're going to come up with a solution, which is what came up.
We had a solution that could buy it back at a higher rate.
How much did the premium actually.
Change, It depends on where they were calling, but it was to give an example, there was like one vessel we saw their war slip, their traditional war. Before the war broke out, they were paying about fifteen thousand dollars a year for that. And then when the rates first came out from the underwriters to get the vessel out of the golf, it was going to cost about sixty thousand dollars just for a seven day period.
To get out.
And then once the straight closed and there were minds in a strait, there was a separate notice given if you're transiting the straight, so now you have a war we called a buyback.
It's a reinstatement of the cover.
You have your war buyback for the Persian Gulf, you're covered in there. But if you're transitting the straight there's a new exclusion that may apply with new rating.
Sorry you said minds in the Strait r A. Are there definitely minds because I think there's been some discussion of that. And then b this kind of gets to the question that Joe mentioned at the intro. I know I talked about insurers as enablers of behavior, but when you're in a war situation, I assume people also don't want to be killed exactly, even if they can get insurance.
That was exactly that's what we wanted to get to.
Yeah, the vessel, they weren't trapped because there was no insurance or because the rates went up.
It's they just don't want to put. You want to go through, you want to put your.
Career and it should People should know though too, that ultimately the decision to do that type of course, is for the master of the vest to decide. It's not you know, you can't direct him to do something that he believes will put the crew and the ship at risk. That is rule number one. I did want to comment, Yeah, yeah, yes, exactly.
The other thing I wanted to mention is that actually I was speaking to one of our colleagues that manages our European subsidiary, and he has extensive experience in hull and on war, and I was given to understand that the ships that were trapped on the inside were given different rates than ships that were looking to go in
and out. So the ships that were trapped, it was taken into account that there this is not a voluntary it's not an initiative to trade in a high risk area, that they are trapped and if they want, the rates were significantly lower to come out if you were trapped than it was for those ships looking to actually transit to do regular trade through the high risk And in those cases when they were looking to trade, the rates were ranging from anywhere from three to ten percent of
the hull value the ones that were initiating this type of trade, whereas compared to the ones on the inside, the average rate I was told was about point five It's it's a big difference, So that is very important to understand. And insurance was always available, it's just whether you wanted to do it really ultimately, and the operators and our members that we spoke to all made it very clear that the safety of their crew was much more important and then everything else.
It makes a lot of sense to me that like certain types of insurance that are like that end up in this sort of reinsurance or sorry, self insurance model, are the types that are like highly stable and predictable. Tracy, do you remember twenty fourteen AOL it was still a public company. Wow, And I don't know if anyone remembers that.
It's a little bit of insurance history. The CEO said on its earnings call that the company's profits had taken a hit because one of their employees had a very high complicated pregnancy and it was so big that they actually noted and then everyone sort of figured it out I think who it was, and it was like a pretty egregious like privacy violation. But they were self insured because it's a large company and over time, you're like, you know, your health insurance costs are going to be
stable from one year to another. But it was just, I guess, such an expensive pregnancy that he mentioned it on the call as having affected earnings that quarter. But it does seem Yeah, but this really put clicked that when you have a type of insurance in which distribution payout distributions are roughly stable on a year to year basis, that is the natural time for the sort of nonprofit self in assurance model of some sort.
Well, actually, though there is a nuance of that.
Yeah, so because it's not it's not really away stable, Okay, it's just spread out enough.
It's spread out that there's a resiliency to it.
Okay, they're able to withstand the volatility. The model is able to withstand the volatility since there are.
Multiple clubs that carriers can choose. Do clubs risk like sort of snowball effects? Carriers defect and then suddenly have fewer members, and then the risk is like magnified, Like is that attention from one club to another? Like, I wouldn't want to be part of a small club.
We're a small club.
I wouldn't want to be a member of all I mean like, I mean like a really like timey club where it's like the two of us were going to ensure each other that what I'm saying, no club is that this is what I'm saying. Yeah, it feels like you need some critical mass.
Right, Well, Like I said, the clubs collectively ensure ninety percent of ocean going to so being a small club is still a big club.
Level in which, yeah, mutual insurances are there are rules in place to deal with certain things like that. Like you actually it's true, you actually don't want because P and I has a long tail, right, so like some things to take some claims are still open ten years after and sometimes even longer. So that's why, actually the mutual system allows for a multi year openness. But yes, there are there are we you know, we do have agreements in place that protect us from things like that.
Yeah, And the way the pooling and reinsurance mechanism works, it's all relative to your size.
Okay, So the club's collectively pool.
Claims individual claims between ten million and one hundred million dollars and then beyond that they're buying this reinsurance up to three three and a half billion. But what you pay is there's a there's a formula which we're not going to go through now it gets complicated, but it's based on your relative size. So if you're a smaller club, act right, you're paying less for these large marathon casults.
Larger club is going to take a big hit, even if it's not their claims. So it's all scale.
It's all scale, then it's quite fair. And the concept actually is that everybody pays their share over time. What you what you take out, you need to put back in, and that's at the at the club level and at the at the the group level.
The group level, let's say.
Yeah, just going back to the straight up oar moves for a second, there are some ships from certain companies that have been like running through despite everything going on, And the one that springs to mind is Dinacom and I actually I sent an email to them asking if if I could get their owner on odd lots and I haven't received a response, perhaps unsurprisingly, but like, what is enabling them to get through versus other ships?
Yeah, I don't think that that's something that we'd be able to. Really, they're not our members, we're not familiar. We do have another member though that was hit. But the other thing I wanted to mention is that despite the fact that the P and I clubs are not the primary ensure on a case of war, we actually
do take an active part, so we are involved. We are close to the member because We have a very close relationship with all of our members to begin with, right, we are most of the time copied on all the correspondence. So we also provide some guidance because besides the P and I side, we also have what's called an FD and D cover, and that's freight to margin defense, and so that helps the owners with disputes that may arise
contractual disputes. We don't ensure the claims themselves, but we provide the guidance, the legal guidance.
We have a lot of lawyers within the club, but we also.
Support them if we have to hire lawyers outside to defend or to pursue any claims that they may have, and that's a.
Legal costs cover.
So a lot of the times, even on cases that we are not directly responsible for or not directly not responsible for but covering, we're usually quite involved because like I said, we're protection and indemnity. The protection part of it involves standing next to the member and guiding them, but the intricacies of any particular owner being able to cross the strait is not something that we're actually privy to.
So but yeah, I mean, the only thing I can say is that I know that there are certain factors that are looked at by the Iranians when they are attacking.
You know, this is such an interesting conversation, can go a lot. I'm looking at a this article about Doynacom, the owner of the billionaire's shipping magnate, Greek buccaneer George Procopiu. Is that's the name of the firm. I noticed, so the American Club, you have office locations in New York, London, also in Piraus in Greece, and then also Shanghai in
Hong Kong. And I'm just curious, like I guess I had of this current moment a sad We alo sort of know that Greece specifically is one of the centers of shipping number for a long time, but has it moved east over time? Okay? We know that a lot of the ship building has happening in Asia, and we also know that so many of the routes are Asia dominated, et cetera. Have the financial flows of insurance moved east in the same way the physical flows. Have the financial
flows of insurance moved towards Asia? I should say specifically read the insurance side has insurance.
Not from an international towards.
Asia in the same way that the trade flows.
Not from an international perspective, China does have its own p and I club. It's not a member of the international Group of P and I Clubs. They do have reinsurance relationships with some of the clubs that are members of the group. It's very large p and I club, but it generally ensures Chinese managed and.
Building and trade is so Asia dominated. The financial element of the insurance has not.
And the insurance no, it hasn't really, not from the international side of things, not yet. Not from the international side of things. I think even all the major traders are still ensuring with the UK, Navian and.
The American American clubs.
Yeah, I would say, let's Dave, I don't know if you've seen anything different.
I've not seen anything different.
If the US starts building ships again, yeah, is that great for the American P and I Club? Does you would your like membership automatically increase.
It wouldn't automatically increase, No, because there's no directive as no directive in any country that you need to that your insurance has to be you know, domestic. But it would probably increase our potential to grow if we.
Began to build ships in the United States.
Yeah, do you see any signs of that actually happening. We've done a number of episodes on how people who wanted people who want.
To Yes, yes, I mean we wanted to happen to what we want the American maritime industry generally to become stronger. We think it's we do think it's a shame how it's developed over time. The American Club also was a part of that, you know, like I said, up until we internationalized, you know, our membership was very very small because it was only American and the maritime fleet was shrinking at that time. Obviously, we are the only we
are the only club. While while all the clubs have a presence in the United States, not all of them, but many of them, they don't have an actual regulatory domicile like we do. So the American Club and all of its people in the United States are probably the most significant and the deepest bench in terms of know how of managing and underwriting maritime casualties. And we're very proud of that when we've been doing that for almost one hundred and ten years now. So we're not as
personally the company itself. But yet obviously we are very supportive and we are actually very active, and we have relationships also with all the agencies. We actually ensure all of the marad training vessels. We know all of the agencies very very well. We have active relationships, and we are very much a part of that American industry that is looking to bolster what's happening here in the United States.
Joe, you need to build a ship and then join the club.
You mentioned the ship startup, so it could happen.
All right, Dorothea Ioanu and Steve Oka Lukian, thank you so much for coming on all thoughts.
Really appreciate it.
Thank you so much for having us really good.
Thank you all right, Joe, that was a fascinating episode.
For sure.
I feel like I am slowly getting a better handle on the maritime insurance industry. It is interesting to me how like divided all those different risks are, and to Steve's point, the idea being that like, well, if you're a P and I club, you can kind of price out the risks of going from A to B with like a certain type of cargo in a certain like predictable manner. But if you're doing war risk insurance. That's a very different kettle of fish. You know, it's a maritime expression for you.
Oh yeah, good job, thanks it, And she made that's a lot of sense to me, this idea that like war, the pricing for war insurance would reset very quickly, right, because one could imagine say, like buying a multi year you know, oh, you're going to buy this insurance and it's going to cover you for the next few years. Most of the time there's not war, and so most of the time you don't want to be paying a war premium, right, et cetera. So it's all just like
a trade off. It's like, okay, like no one loves it, a war breaks out, so suddenly, like your premiums are going to surge the next week. I don't think anyone is very excited about that. But that's just the flip side for getting really low war risk insurance the vast majority of the time when war is not going to be an issue for you, it's just a trade off in terms of like how long do you want to be paying for it and so forth. So that actually made quite a bit of sense.
Well, it also seems like the limiting factor on ships getting through the straight at the moment isn't In fact, it's not all it's like whether you can and survive.
Yeah, they survived. Yeah, the captives of the safety of the crew and just being sort of like the same.
So even though insurers run the world, there are limits to the abilities of insurers.
I would say to affect you, no, I.
Think it's really interesting. I also, like, you know, at first, I was like, well, how is a ship and their liability like a car where there's you know, but you know, then you see like all their posters and it's saying all of these very safety. They're really interesting because it's something like, you know, make sure you're getting enough.
Sleep, Are your hatches tight?
Yeah?
Are your hatches tight? Don't don't check your email all the time. I think there's a drinking one too. Oh yeah, take control of fatigue, everything in moderation. So it's actually very similar to car to sort of liability insurance for a car, just in the fact that like the basics of safety apply to a ship as well.
I'm going to print out the cell phone one and get it framed and put it on your desk, Jock.
That would be I would like that I would like, all.
Right, shall we leave it there?
Let's leave it there.
This has been another episode of the aud Loots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
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