P&I clubs confident review unlikely to spark antitrust sting - 27/08/2014

International Group says block exemption move not a threat to P&I club co-operation


The protection-and-indemnity (P&I) clubs are undaunted by a review into insurance pools and the sharing of statistics launched by the European Commission (EC).

Although the 13 P&I clubs in the International Group operate one of the most extensive claims pools, co-operate closely and have a price-fixing agreement, they are hopeful the review will not lead to a back-door antitrust probe.

The EC is inviting comments on the working of the insurance block-exemption regulation (IBER) and whether this “exceptional legal instrument” should be renewed.

The P&I clubs, who have been the subject of three antitrust investigations over the past 30 years, say the IBER review should not prove a threat to co-operation between the mutuals.

The IBER allows insurers to operate insurance or reinsurance pools, and compile statistics and data that would otherwise be regarded as anti-competitive.

The P&I clubs pool claims above $9m, jointly buy $3bn of reinsurance cover, compile statistics and otherwise co-operate through the International Group.

They also have an agreement not to undercut rival clubs’ premium pricing, even though such a cartel would be illegal in virtually all other areas of business.

But club co-operation, including the price-fixing arrangements, have been given the green light to continue after EC antitrust investigations in 1985 and 1999, with a third probe abruptly abandoned in 2012 on the grounds that it had proved insufficiently conclusive.

The previous investigations and the fact that the clubs have a near monopoly in providing P&I cover for larger ocean-going ships mean the International Group does not rely on the block exemption.

But a questionnaire issued by the EC as part of the IBER review identifies ships and ship liability as two of 18 insurance sectors that respondents may be interested in.

The block exemption gives general authorisation for insurance pools with market shares below 20% and reinsurance pools below 25% but the International Group claims pool has a market share above 90%, and close to 100% for vessels that could produce catastrophic claims such as VLCCs, large boxships and major cruiseships.

When the last antitrust investigation into the P&I clubs was launched in August 2010, the EC acknowledged that the clubs were “not automatically covered” by the IBER because of their high market share.

The International Group has also advanced the argument that the clubs need to co-operate if they are to provide cover running to billions of dollars for the biggest shipping risks, and for much the same reason need to buy reinsurance on a collective basis.

The P&I claim for the Costa Concordia cruiseship disaster runs to $1.4bn, for the Rena containership to $425m, while a relatively unremarkable bulker casualty can, nowadays, end up producing a clean-up and wreck-removal claim of $100m.

International Group chief executive Andrew Bardot says the clubs’ market share means the IBER is not relevant.

“While it will be interesting to see where the consultation process leads, this is unlikely to have any impact on the current pooling arrangements of the International Group,” he added.

Bardot says the group only collates data necessary for the effective operation of the claims pool and the joint reinsurance arrangements.

“It is often assumed we collect more data than we do. The clubs are competitors and they are sensitive about what data is shared,” he added.

While the terms of the International Group Agreement are reasonably widely known, details of the pooling agreement between the P&I clubs are closely guarded and so the subject of some suspicion.

The current IBER was granted in 2010, with the EC consultation running for three months until November.

Block exemptions in a number of other sectors have already ended, although the liner-shipping sector and car distribution remain covered. The current IBER expires in March 2017 unless extended before then.

in www.tradewindsnews.com 22/08/2014