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P&I claims and premiums on the rise, Aon report says


November 20, 2007   by Canadian Underwriter


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The surge in costly in protection and indemnity (P&I) pool claims in 2006 could be a sign of the times, as booming shipping operations become more expensive, according to Aons P&I Pre-renewal Report 2007.
In anticipation, P&I clubs are already initiating increases of 10-20% in shipowners premiums at the next renewal, Aons report notes.
The high value of claims in 2004 so far totalling US$280 million were viewed as an anomaly, yet current evidence suggests that costly claims may be a feature of the current cycle, Aon says in a press release.
Aon says 2006 claims, if they follow recent trends, could reach US$580 million. The 2006 average claim value of US$18.06 million would nearly double the 2004 average of US$9.66 million.
There is already an ominous outlook for 2007, Aon says. The P&I sector has already clocked up US$84 million in claims after just six months, which beats the figures for the similar period in 2006.
Aon executive director Stephen Hawke says in a news release: This renewal is likely to be one of the most interesting in recent years. It does not take a rocket scientist to be able to predict that rates are going up. The key issue, though, is to establish the causes behind the rises and the medium to long term prognosis.
Aons report says rising claims costs are due in part to a more expensive operational environment, including:
more sophisticated and expensive ships;
expensive cargoes;
advances in salvage technology;
costly yard repairs in short supply; and
environmental and personal safety legislation, the so-called ‘convention creep.
Rather than merely calling for higher premiums, P&I clubs could react to the claims surge by demanding increased levels of deductibles to reduce the burden of frequent, smaller claims, Aon says. More thought should be given to dual impact deductibles: a lower servicing deductible to access club services on a costed basis and a higher reimbursement deductible with appropriate premium discount, the release says.
Consideration should also be given to raising the individual club retention even higher, Aon said. Individual club retention has already been boosted from US$6 million to US$7 million in 2007.


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