Background
P&I Clubs are mutual non-profit making associations that provide protection and indemnity insurance to their the shipowners, their members. The International group, based in the UK, is an association of 19 of these Clubs, covering around 89 % of the world-market for P&I insurance (Protection and Indemnity).
P&I insurance provides cover to shipowners against liabilities for contractual or third party damages, such as oil pollution, crew or passengers injury or collision with other vessels.
In 1985, the Commission granted for ten years a formal exemption for the IG Agreement. After expiry of this exemption, the P&I Clubs requested its renewal. The Commission made an in-depth investigation to see how the IG Agreement and the Pooling Agreement had functioned in practice since the decision taken in 1985. This gave as result a statement of objection from the Commission in June 1997.
The conclusion of the Commission was that restriction of competition was existing:
- under the Pooling Agreement all P&I Clubs had to offer the same level of coverage, even if a large number of shiponwers wanted to obtain substantially lower levels. The Greek Shipping Co-operation Committee, a shipowners organisation had made the complaint; and,
- under the IG Agreement which imposed limits on competition between P&I Clubs regarding rates charged to shipowners.
After the statement of objections, was sent by the European Commission, the IG lowered the common level of cover offered and clarified that P&I Clubs are free to provide different levels of cover outside the Pooling Agreement.
After further discussions with the Commission and oral hearings, the IG also modified the IG Agreement in order to allow more competition on rates between individual P&I Clubs. Now, any P&I Club can offer lower rates than its competitors in order to reflect its lower administrative costs. The IG also adopted measures to increase the transparency and compatibility of a P&I Club's administrative costs. Restrictions on competition remain for the other elements, which influence the rate, namely, those which reflect the cost of the claim. The Commission accepted however that these restrictions were indispensable for the claim sharing between P&I Clubs to function properly.
The Commission accepted the amended Pooling Agreement, as this agreement is necessary to permit P&I Clubs to provide the substantial level of insurance cover they offer. Claim sharing permits P&I Clubs to spread the risks and therefore to offer higher levels of cover than those they would individually offer.
The Commission 's decision dealt with the International Group Agreement and said that it was clear that the IG Agreement restricted competition among P&I Clubs, but it was exempted pursuant to Article 85(3) of the Treaty.
Although the IG Agreement's quotation procedures restrict P&I Clubs from fully competing on rates, the Commission is of the opinion that these procedures are indispensable to ensure the benefits which the IG, through its claim sharing, brings to Clubs and shipowners.
The exemption was granted for ten years, provided that market conditions and claim sharing within P&I Clubs are not changing substantially. Also the Commission will monitor any further amendments of the notified agreements as well as the P&I Club's behaviour in the maritime insurance market.
This article is based and incorporates information provided by the European Commission (Press Releases) and is intended for general information. Specialist advice should be sought before acting on it.
