Simply is Best

Business managers and the public at large have long been confused by the length, complexity and endless exclusion clauses prevalent in many insurance policies.  When it comes to specialist areas of cover, Protection and Indemnity (P&I) in the maritime world for example, even experienced generalist brokers can have difficulty deciphering the jargon that characterizes policy documents marine insurers produce. The challenge of comparing the terms of cover to arrive at considered advice on which represents the best value for their clients often results in headaches of migraine proportions.

One marine insurer is attempting to ease the pain by dispelling the mystifying jargon, shortening the verbiage, minimizing the exclusions and simplifying the wording of its P&I cover.

Mutuals and the Traditional Approach

The Shipowners’ Club, a global P&I insurer with a branch office in Vancouver, is dedicated to the provision of such cover for small and specialist vessels. It has recently embarked on a business strategy of policy wording simplification. The strategy aims to introduce more extensive cover (with fewer exclusions) that is easier to comprehend. The initiative is being rolled out in a series of policies across a number of maritime vessel types that the Club insures.

Traditional P&I clubs, including Shipowners, are constituted as mutuals. Owners and operators of smaller maritime vessels – such as fishing boats, ferries, tugs, passenger-carrying pleasure craft, harbour vessels, offshore supply boats and barges – commonly do not see P&I clubs as their natural providers of insurance. They are more used to dealing with commercial, for-profit insurers.  In line with this habit, brokers also tend to turn to commercial insurers to service such owner/operator clients, often bundling other forms of risk with liability to obtain generalized cover.

Sometimes the advantages of having a specialist P&I insurer are not appreciated, especially in the case of an insurer that is a mutual. Essentially a mutual is a community of its customers, who for good reason are known as ‘members.’ A governing board is comprised of operators with knowledge of the maritime industry and the interests of the ‘membership’ very much at heart. A management team pursues a tradition of service for which the Shipowners’ Club and fellow mutuals have been renowned since their foundation (Shipowners was founded in 1855). Consequently, mutuals display a fundamental emphasis on efficiently meeting all justified claims. More than that, a mutual insurer has every incentive to help its members cut their own costs and exposures by adopting the best risk management and loss prevention practices.

Charting a New Course

While retaining the advantages of mutuality, Shipowners is departing from the traditional P&I club stance that treats all policyholders, or members, on pretty much identical terms – for example, by employing the same ‘club rules’ for all types of vessel and sizes of fleet. The Club’s new policy strategy is to strip away the numerous claims exclusions distributed throughout the 45,000-word document known as the P&I Rules. The result will be a crisp, easy-to-read document in the order of only 2,000 words. Moreover, vessel owners no longer need to consult an insurance dictionary to ascertain the meaning of words well understood by those in the marine insurance market, but little known outside of the market.

The aim, in the case of the yacht sector (and a goal that will be applied to other vessel sectors in the future), has been to produce an all risks policy under which the policyholder is insured for all liabilities arising out of owning or operating their yacht. The result is a clearer policy wording, specifically designed for the yacht market, containing far fewer words in an altogether less legalistic and easier-to-understand language. Although there are 43,000 fewer words in the new policy wording, wider cover for yachts is assured. Once more, the aim is to provide an all risk policy.

The traditional approach, which the Club will still maintain for the very largest yachts over 6,000 GT (gross tonnes), is to categorize cover into 22 different sections. An omnibus rule acts as a safety net for those claim incidents that are not specifically mentioned in the policy. Shipowners’ new policy will consider any marine liability incident within the policy period covered, on the face of it, unless the incident falls within a narrow band of common-sense exclusions.

New features of the policy include automatic cover for periods on either side of buying or selling a yacht – the pre- and post-delivery periods. Previously owners were required to give advance notice of these occurrences.  Additional risks covered include uninsured or underinsured boaters risks; primary war P&I and a more relaxed stance on cover for yachts while involved in racing. Cover for war risks is now available on a primary basis. Traditionally, yacht owners would have to find an insurer to cover them on a primary basis – that is, up to the insured value of the yacht – and then look for Protection and Indemnity top-up cover for claims that may have exceeded that value. Now the cover will be seamless. One policy provides cover from the first claims dollar to the last.

The new policy also sweeps away a complicated set of criteria previously in place for water sports liability cover. Now, as a result of providing cover for the water sports equipment carried by the yacht and belonging to the boat’s owner(s) and guests, there are no restrictions on owners and guests getting on the water to enjoy themselves.

Accounting for Unique Vessel Features

All cover is on a fixed premium basis, avoiding some of the misconceptions that P&I clubs spring nasty surprises with so-called supplementary calls.

The yachts that Shipowners currently insure are all professionally crewed and are usually referred to as Luxury, Super, Mega or Giga Yachts. However, the new wording is also intended to appeal to non-professionally-crewed private pleasure yachts in Canada, should the Club decide to expand into this sector. Shipowners believe owners and operators in the yacht sector, more than any other, will benefit from the reduction in jargon within their policies.

Of course, yachts are just the start. New policy wordings encapsulating the same principles of simplicity and comprehensiveness will soon be announced by Shipowners to cover other vessel sectors, such as fishing boats and passenger ferries. Each category of vessel, naturally, has unique operating characteristics. Just as these have been accounted for in the case of yachts, so, too, will they be accounted for in policies for other types of vessels. Owners and operators of the other types of craft will recognize in their new policy wordings a practical simplification of their policies regarding cover of risks common to their business, more sensible exclusions and less restrictions.

For the Canadian market in particular, this policy is a big step forward.