P&I clubs debate advantages of scale
‘We still see ourselves as clubs, we’re owned by shipowners, our members are still our shareholders,’ Gard’s Christian Pritchard-Davies says
Size confers advantages, particularly in the ability to handle large claims and even out volatility, but mergers may not suit every entity in International Group, conference hears
While scale confers advantages on protection and indemnity (P&I) clubs, further mergers may not suit every entity in the International Group, an industry audience has been told.
NorthStandard chief strategy officer, Ed Davies, said the old North and Standard P&I clubs had not sold their recent merger to members on the basis of being big or small or even squeezing costs. “It is mainly about being able to do more rather than being bigger,” he told the Marine Insurance London conference.
The P&I insurance business is becoming increasingly complicated and is facing challenges such as the increasing size of claims, environmental, social and governance issues, the need to invest in technology and decarbonisation.
But scale and diversification is certainly beneficial. Chief among the advantages is the enhanced ability to manage volatility.
“We see real and firm benefits from diversifying, where it remains within our area of expertise,” Davies said.
American Club chief underwriting officer, Tom Hamilton, said while his club is one of the smaller affiliates in the International Group, it has seen 20% growth in both entered tonnage and premiums in past 12 months, which suggests it is doing something right.
“Scale is important, but it’s how you achieve it,” he said.
Christian Pritchard-Davies, chief financial officer at Gard, which is the largest club and a pioneer of diversification into commercial lines, said clubs compete on value. “We believe being large enables us to deliver that value,” he said.
This is most notably the case with cost efficiency, with larger entities better able to even out costs over a bigger volume of business. Size also makes it easier to achieve breadth of competence in areas such as IT.
Moreover, being larger makes it easier for Gard’s individual voice to be heard more clearly. For instance, the club now has a direct line to the Norwegian government regarding sanctions, unlike 30 years ago.
It is less vulnerable to large claims and has a higher reinsurance retention point. Nevertheless, its philosophy is essentially “mutual first” and any diversification is a bolt on.
While emphasising that Gard has no plans to move into cargo insurance at present, Pritchard-Davies did not rule the step out at some point in the future.
“The insurance market is changing, our customers are consolidating and their needs are changing and our mission in life is to follow them.”
Britannia chief executive and International Group chair, Andrew Cutler, said his club had remained monoline, because that is what members want. But all 12 International Group clubs benefit from scale, thanks to the pool scheme.
Pritchard-Davies said clubs have traditionally seen themselves more as part of shipping industry than as insurers, but that has changing as they are dragged into the net of the regulatory framework for the wider insurance industry. “We still see ourselves as clubs, we’re owned by shipowners, our members are still our shareholders,” he said.
This article first appeared in Lloyd’s List, a sister publication of Insurance Day
