Ship Management International column September/ October 2017 - Know which insurer you are getting into bed with

To see the article as it appears in Ship Management International, please click here.

Stuart Munro, CEO of ITIC, explains why ship managers need to take time to understand who insures the ships they manage.

ITIC makes it a condition for its ship management members to be co-assured on the hull and P & I policies of the owner because, in many jurisdictions around the world, ship managers are deemed to be the operator of the ship. By being named as a full joint assured on the hull and P & I policies of the owner, the ship manager is only taking advantage of the cover that was offered to the ship owner in the past when the technical function of managing the ship was still in house. The insurer is not offering any more cover by including the ship manager as a co-assured just because the ship owner has sub-contracted some of the functions he used to perform himself to another company.

Compared to the value of the ship and the hire or freight earned, the ship management fee is a small part of the overall cost of running the ship. It is clear that the manager could not afford to take out a separate P & I and hull insurance to protect their own interests up to the full value of the ship. This is even more of an issue if that insurance is already available, for no additional cost, as part of the owner’s usual marine insurances.

ITIC is there to cover claims of negligence against the manager arising out of the management of the ship. These are usually matters that would not be covered under a P&I or hull policy, such as a technical issues at dry docking, fraud by staff, post fixture errors, operational errors etc.

ITIC therefore makes it a requirement for a ship manager to be co-assured, not to avoid claims for negligence against the manager – that is what ITIC insures - but to protect the manager from claims that are the responsibility of the owner.

ITIC has been providing insurance to ship managers for more than 30 years. Until recently, ITIC only approved International Group P&I insurers. It was only in the last few years that we included non-mutual or fixed premium P&I insurers either rated A- or above, but with the added provision that this be at the sole discretion of the managers of ITIC. The quality of some of the fixed premium P&I providers is variable, to say the least, hence ITIC reserves the right not to approve a ship under management with some P&I insurers. This happens very rarely as it is in the best interests of the ship manager that they only manage ships entered with a P&I insurer they can trust. 

It should be remembered that ITIC’s cover includes an element of contingent P&I cover to members particularly ship agents (who have no choice as to who is the insurer of the ship) and to ship managers - who do have a choice as they can choose not to manage that ship.

A ship agent is not deemed to be the operator or owner of the ship (except in a handful of jurisdictions), but the ship manager is always considered to be the operator of the vessel and so faces the same exposure as the ship owner. If that ship manager  decides to accept under its management a ship whose owner has selected a P&I insurer of dubious merit or one which ITIC, or your insurance broker, has little knowledge about, we believe it is prudent for the ship manager to consider if this is the sort of business they want to take on. The ship manager may find themselves paying a P&I claim not paid by the ship owner's insurer and so the ship manager is exposed. A ship manager is based in many accessible legal jurisdictions (UK, Singapore, Hong Kong etc) whereas the ship owner is often not.

Ship managers need to take time, with the assistance of their insurance brokers, to understand who insures the ships that they manage. If the investigation leads them to conclude that the insurer isn’t as robust as others in the market, the ship manager needs to decide whether managing that ship is the right commercial decision for them.