P&I clubs are well versed in sustainability: The American Club's Hamilton

The effects of the consolidation of the International Group to 12 clubs were felt “to a degree” during the 2024 protection and indemnity (P&I) renewal season, according to The American Club’s chief underwriting officer (CUO), Tom Hamilton.

A not-for-profit association whose member clubs provide marine liability cover for 90% of the world’s ocean-going tonnage, the International Group was reduced from 13 clubs following the merger in February last year of North of England and the Standard Club to form NorthStandard.

In an interview with Insurance Day, Hamilton says the key takeaway from the consolidated International Group’s first renewal is each club has a role to fulfil in the marine insurance ecosystem and further contraction is “largely not desirable” for shipowners and their brokers.

“Some shipowners are more passive in their interest of activities of the clubs beyond risk transfer and the role the International Group has for the marine industry in general, but a majority we interact with are keener to ensure representation and recognition from their club as well as in the broader audience the International Group engages under the auspices of P&I,” Hamilton says.

Additionally, during the course of the 2024 renewal, there was evidence of the value loyalty, particularly during these uncertain times, holds “up and down the P&I chain”, he adds. In terms of renewal results for The American Club, Hamilton considers the multi-year effort to better align premium levels with the post-pandemic risk landscape.

“We have focused on long-term sustainability in premium rating adequacy and this has led to premium levels increasing 30% over the period between 2021 and 2024 and even through this effort we were encouraged by a 93% retention rate during the challenging 2024 renewal cycle,” Hamilton says.

Claims volatility

The CUO’s outlook in terms of claims is there was some moderation in activity during 2023 but it is necessary to prepare for a period of increased claims volatility within the club’s retention as well for its share of International Group Pool claims.

Social inflation is a significant driver of this volatility globally, Hamilton says. “Given the degree to which ships and seafarers interact with the environment along with the unique aspects of life at sea, this has an acute impact on the cost of P&I claims. With increasing volatility, even a modest increase in loss frequency can be detrimental to overall performance,” he says.

These are factors that contribute to the necessary concentration for all clubs on premium sustainability, he stresses. “We have come through a hardened market period for P&I; however, that only followed a decade-long soft market during which time there was dramatic rate erosion. The rating softness during that period was the consequence of a relatively benign claims experience and an extended period of generally poor trading conditions for shipowners,” he says.

Notwithstanding the improved underwriting performance in 2023, Hamilton says care is needed to avoid an overreaction to the short-term experience of moderated claims. Indeed, 2024 so far shows a slight uptick in direct and pool incidents compared to 2023, he adds.

It is useful to recall, he continues, that P&I clubs were not designed to make profits and similarly to consider how P&I has evolved rapidly in the past 25 years, where the reach of product diversification and large investment portfolios affect actual underwriting performance.

Hamilton says: “Traditionally, clubs sought to adjust the P&I offering by adding cover in response to changing regulatory environments as well as the needs of shipowners and, more recently, diversification has expanded to include P&I-adjacent insurances previously provided by commercial insurers. For us, it is critically important to remain focused on the level of service provided to member insureds and where possible to offer ancillary products that support that comprehensive service mindset.”

The American Club will continue to exert efforts to deliver balanced underwriting results, he stresses. For the 2025 renewal, the club expects premium increases will be “appropriate and always in line” with its underwriting process intended to achieve fairness between member insureds, he adds.

Approach to ESG

From the earliest days, P&I cover responded to elements of environmental, social and governance (ESG), particularly regarding the first two, Hamilton says.

“Around the time P&I clubs began to form 170 years ago, the daily life of a seafarer was incredibly difficult by modern standards. Their rights and compensation were, up to that point, not well defined. That position began to change in the first half of the 19th century with the development of maritime laws that included liability and compensation regimes,” he says.

P&I clubs were formed and grew in response to these developments and, critically, these included benefits to seafarers. Hamilton says: “It is reasonable to link the earliest iterations of merchant shipping acts all the way to the Maritime Labour Convention providing cover for owners’ liabilities and protection for sea­farers. In an informal way, ESG criteria has always been a part of the DNA of P&I.”

In practice, P&I cover terms require regulatory compliance with flag state and classification standards, which include elements of ESG. In a related way, The American Club’s underwriting guidelines for quality incorporate ESG principles. This extends, Hamilton points out, to compliance with international conventions and International Maritime Organization (IMO) regulations; for example, requirements to use compliant fuels aimed at reducing emissions.

“We encourage member insureds to use best practices to achieve standards for crewing and to foster seafarer wellbeing, including medical exams. These exams are a tool for loss prevention; however, they also ensure seafarers obtain a medical exam on a regular basis,” he says.

Importantly, the club seeks opportunities to provide cover for operators whose business is aligned with a green economy and reduce the impact shipping has on the environment. “We avoid operators with a history of regulatory violations or crewing issues. However, we have a willingness to engage with them and lay out the standard we would expect of them to be eligible in the future,” Hamilton says.

Best practice

The American Club’s loss prevention department has a broad scope of activities, he continues, including ship surveys and technical services. Increasingly, however, it supports club initiatives that are designed to aid member insureds in adopting best practices under ESG criteria to assist the member insureds’ operation.

Examples include pollution avoidance, safe cargo handling, sexual assault/sexual harassment (Sash) awareness and training and seafarer wellness. Not­ably, the club was recently recognised by Safety4Sea for its Sash awareness initiative.

The American Club hosts seminars around the world, Hamilton adds, to focus on specific areas, demonstrate the value of its products and provide a platform for shipowners to exchange ideas to improve their individual efforts.

P&I at its core is aligned with ESG criteria, he stresses. “The structure of mutual P&I clubs speaks to this as not-for-profits. The idea clubs should take in the minimum premium necessary to balance costs and claims means shipowners’ exposure to liabilities are protected in an efficient and transparent manner, with club boards of directors responsible for governance being composed of shipowner member insureds,” he says.

“As a result of lessons learned out of developments arising since the Industrial Revolution, it is today a sacred opportunity to collectively accept the challenge of preserving for the future the opportunity for prosperity and the entrepreneurial spirit that has benefitted so many in the marine sector. This is the core of sustainability for us”
_{Tom Hamilton
The American Club}

The American Club is engaged in various IMO initiatives via the International Group, he continues, and also builds and fosters relationships with other industry stakeholders, including through active participation in organisations such as the North American and Hellenic marine environment protection associations: Namepa and Helmepa, respectively.

The American Club seeks to provide opportunity for P&I cover for operators that invest in emerging alternative fuels and use renewable power sources whenever practical, Hamilton says.

He says: “As underwriters, we encourage member insured and seafarer training, ship surveys and management reviews. Not long ago a request from a P&I club to perform a management review by its loss prevention department was considered a disciplinary step, whereas today it is seen broadly as a positive opportunity to leverage the collective experience the club has and improve on existing practices.”

All these actions and the strategic direction of The American Club are supported and monitored by its board of directors, which Hamilton describes as a diverse group of individuals who represent the array of member insureds.

“We are very proud to have several member insureds who are actively pursuing alternative fuels, including one who has developed a system of capturing and removing diesel emission from auxiliary engines at berth/anchor. This type of technology is foundational to the end goals of the recently announced US Clean Port Program, designed to drive the transition to fully zero-emission port operations,” he says.

Sustainability

“Sustainability in the marine sector is the recognition of the critical role our industry plays in ensuring the world’s future is protected, as it underpins global trade,” Hamilton says. “The reality of day-to-day shipping and the marine sector requires a mindset from all stakeholders of attention to detail to drive commercial and economic advantage. Each ship operates, even in this technologically advanced age, with a great degree of autonomy and in the event of a casualty a single ship has the potential to impact the global view on the whole industry and seaborne global trade.

“All facets of the marine sector work in concert for the safe operation of a ship and collectively it is important that a wider view is taken on what is necessary and correct to ensure that future generations are able to similarly co-operate.”

A process for considering that wider view is reflecting and reporting on sustainability initiatives, which serves as a “valuable marker for accountability”, he says, and an understanding of each stakeholder’s role. “A chief role we have, as a P&I club, is to provide robust protection for other stakeholders, including primarily shipowners, and by doing so we effectively support the whole chain, enabling safer, more efficient, reliable and secure global trade,” Hamilton says.

An inherent quality of stakeholders in the marine sector, he adds, is an attitude of turning problems into commercial opportunities.

“Advances in technology, since the age of sailing ships closed, have presented new challenges and they continue to emerge,” he says. “As a result of lessons learned out of developments arising since the Industrial Revolution, it is today a sacred opportunity to collectively accept the challenge of preserving for the future the opportunity for prosperity and the entrepreneurial spirit that has benefitted so many in the marine sector. This is the core of sustainability for us.”

Hamilton concludes: “It may not be a unique opportunity before us, but seizing the opportunity is necessary more now than ever before in our history.”