Protection and indemnity insurance, more commonly known as P&I insurance, is a form of mutual maritime insurance provided by a P&I club. Whereas a marine insurance company provides "hull and machinery" cover for shipowners, and cargo cover for cargo owners, a P&I club provides cover for open-ended risks that traditional insurers are reluctant to insure. Typical P&I cover includes: a carrier's third-party risks for damage caused to cargo during carriage; war risks; and risks of environmental damage such as oil spills and pollution. In the UK, both traditional underwriters and P&I clubs are subject to the Marine Insurance Act 1906.
A P&I club is a mutual insurance association that provides risk pooling, information and representation for its members. Unlike a marine insurance company, which reports to its shareholders, a P&I club reports only to its members. Originally, P&I club members were typically shipowners, ship operators or demise charterers, but more recently freight forwarders and warehouse operators have been able to join.
Whereas the assured pays a premium to an underwriter for cover which lasts for a particular time (say, a year, or a voyage), a P&I club member instead pays a "call". This is a sum of money that is put into the club's pool, a kind of "kitty". If, at the end of the year, there are still funds in the pool, each member will pay a reduced call the following year; but if the club has made a major payout (say, after an oil spillage) club members will immediately have to pay a further call to replenish the pool.
The International Group of P&I Clubs is comprised of:
• American Steamship Owners Mutual Protection and Indemnity Association
• The Swedish Club
• The Britannia Steam Ship Insurance Association
• The Japan Shipowners’ Mutual
• The London Steam Shipowners
• The North of England
• The Shipowners’ Mutual
• The Standard Club
• Steamship Mutual
• The West of England Shipowners Mutual
• United Kingdom Mutual
A mutual provides risk pooling, information and representation for its members. Some Clubs also offer fixed premium P&I cover which is designed to protect smaller and medium-sized vessels.
The full range of risks covered by the P&I Clubs include crew, stevedore and third party death and injury and other crew liabilities, collision liabilities, damage to docks, pollution, removal of wreck (all of which are ‘protection’ risks), loss of or damage to cargo, ship's proportion of General Average, customs penalties and many types of fine (indemnity risks).
Freight, Demurrage and Defence Clubs are also run by some of the major P&I Clubs. These insure the legal and other costs of dealing with disputes that are otherwise uninsured. Typical claims are for freight, demurrage, collections of debt and the like. New building contracts or Sale & Purchase disputes are amongst the most expensive claims handled by Defence Clubs, who also give legal and commercial advice to their members.