i-law

Miller's Marine War Risks

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CHAPTER 2

The underwriters

The London market

2.1 War risk insurance is highly specialist and the dangers of insuring the consequences of what other people do to ships contain so many imponderable factors, which are less easy to quantify than insurance against marine risks, that the number of underwriters who are willing to undertake such insurance is limited. Moreover the number of underwriters who are willing to “lead” a risk which others will follow is very small indeed. The well-recognised “leaders” are to be found in the London insurance market among the syndicates at Lloyd’s, and the insurance companies who are members of the Institute of London Underwriters who are willing to give war risk insurance to merchant ships. In case it should be thought from this bare description that the capacity of the London market to give war risk insurance is limited, or that there is a monopoly among a small number of underwriters in the London market to provide it, two points should be made. 2.2 The capacity of the London market is so huge, particularly when the reinsurance treaties are added to the primary war risk insurance given by the underwriters, that the London market could give war risk insurance to all the ships in the world if required to do so. Any increase in the rates will induce other underwriters to overcome their caution and themselves enter the war risks field. This was particularly evident during the first half of the 1980s. In 1984 an attempt was made by the Committee of London War Risk Underwriters, consisting of the known leaders, to raise the annual rates of premium. This very rapidly foundered, because others saw their opportunity to enter the field by reducing rates below those agreed by the Committee, thereby attracting much business in their direction. This, incidentally, was one of the causes which led to the disbandment of the Committee in October of that year. 2.3 In this we can see an example of the efficiency of the London market, particularly where the assured is concerned. The war risk underwriters of the London market may be small in number, but their capacity to provide war risk insurance is colossal, and the forces of competition which exist in any market which is free of artificial restrictions and restrictive practices will ensure that they are never in a position to enforce a monopoly, either in the provision of the insurance or the premiums which are paid for it. A broker, attempting to place war risk insurance on behalf of a shipowner, will find no difficulty in completing his “slip” for the full amount of the insurance which he requires as soon as a leader has “scratched” the “slip” (or, since 2007,

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concluded the Market Reform Contract1) and indicated the rate of premium which he agrees with the broker. 2.4 The London market as above described, a term which we shall use throughout this work, underwrites on the MAR Form with the respective Institute War and Strikes Clauses attached. It is important to appreciate that there is no requirement that the risks must be written on this form. The individual underwriters are free to make their own bargain with the insured shipowner, and frequently they do so when reinsuring risks from other underwriters or from foreign markets. In practice there is a measure of restraint upon them. 2.5 An exception to this general rule is where a large reinsurance treaty is being underwritten from a foreign market or a mutual association, both of which will require reinsurance for their original risks. Other insurers abroad also afford war risk insurance to ships, particularly in the United States, France, Germany, Italy, Norway and Japan, in the latter case by means of a consortium of underwriters. These issue their own policies. Their capacity is so limited that they find it necessary to reinsure their risks in the London market, or in some cases to give insurance for only a minimal proportion of the amount required by the shipowner. Whilst there is not total uniformity between their policies and those issued by the London market, the willingness of the London market to give war risk cover outside the Institute War and Strikes Clauses is itself very limited, and the wish of a foreign underwriter to give cover for a risk for which he does not have reinsurance is correspondingly inhibited.

The Mutual Associations

2.6 Some nationalities of shipowners have followed the practice of the Protection and Indemnity Associations, and have formed Mutual Associations to give war risk cover to the members who enter their ships for insurance with these Associations. The essential difference between a market underwriter and a Mutual Association is that in the latter case, it is the individual shipowners, who are the members of the Association, who actually provide the cover on a mutual basis to any one of their number who, during the policy year, is unfortunate enough to suffer a casualty. If this should happen, then all the members of the Association will bear a share of the loss. The directing body of the Association is the Board of Directors, who are elected by the members from among their own number. 2.7 The managers of the Association, who manage the day-to-day affairs, are paid a fee for their services, and are responsible to the Board of Directors and through them to the membership as a whole. Associations are underwriters who consist of the insured shipowners, a characteristic which enables them, provided that they can retain the confidence of the market underwriters who reinsure them, to control the costs of the insurance and the claims which are paid. In other words, they provide insurance to the shipowners in accordance with the shipowners’ requirements, and also manage the Association on their behalf. A shipowner who insures his war risks with an Association is given a certificate of entry which incorporates the Rule Book of the Association. These two documents together form

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the basis of the legal contract between the Association and the member and, in the event of a dispute, are the documents which will be considered by the courts. The Rules themselves are extremely lengthy and, because they deal in great detail with the relationship between a shipowner member and the Association, there is no purpose in burdening the reader with their provisions apart from the Rules which actually provide the insurance cover. These are described at greater length in . 2.8 A comprehensive list of the Mutual War Risks Associations which presently provide war risk insurance cover to shipowners:
  • (a) The Combined Group of War Risk Clubs. This is a pool of three Associations providing war risk cover for all nationalities of ship/operator, namely:
    • The London Steamship Owners Mutual Insurance Association Limited.
    • The North of England Protecting and Indemnity Association Limited.
    • The Standard Steamship Owners Mutual War Risks Association Limited.
  • (b) The United Kingdom Mutual War Risks Association Limited.
    • UK War Risks (as of 2009) insures ships of any flag or ownership, having previously been limited to UK flagged vessels.
  • (c) The Hellenic Mutual War Risks Association (Bermuda) Limited.
    • This Association insures Greek flag and Greek owned and/or managed ships, mostly ocean-going.
  • (d) Den Norske Krigsforsikring for Skib.
    • This Association insures Norwegian flag and Norwegian-owned flagged-out ships, mostly ocean-going.
  • (e) Krigsforsikringen for Danske Skibe.
    • This Association insures Danish flag and Danish-owned flagged-out ships, mostly ocean-going.
  • (f) Sveriges Ångfartygs Assurans Förening.
    • This Association insures Swedish flag and Swedish flagged-out ships, mostly ocean-going.
  • (g) The Canadian Shipowners Mutual Assurance Association.
    • This Association insures Canadian-owned ships, some ocean-going but mostly coastal and lakers.
2.9 In addition, War and Strikes insurance is given on mutual terms by the Through Transport Mutual Insurance Association Ltd. and the Through Transport Mutual Insurance Association of Europe Ltd. to containers, trailers and handling equipment. This ­includes some insurance for War Risks on Land. 2.10 The reader is asked to note two points. In former times, the Associations only ­insured ships of their national flags. With the modern tendency to “flag-out”, and the ­establishment of open registers, such a clear distinction is no longer possible. The ­Associations now cover ships which are owned by the nationals of their country, mostly regardless of the flags that they fly, in addition to those which fly the flags of their own nationalities. In a chapter which is only intended to indicate who are the principal insurers who give insurance cover to ships against war risks and the forms of policy which they use, and in a book which is designed to describe and comment upon that insurance cover, there is little point in commenting upon the detailed characteristics of the Mutual War Risks Associations. This is a subject which would require a volume on its own.