Ship insurers’ plans go down badly with Commission

Date: 05/03/1998

By Bruce Barnard

THE European Commission has been warned that it risks lowering the quality of liability cover for maritime catastrophes if it outlaws a key practice by shipowners' insurers.

The warning came after the Commission rebuffed the latest proposals to defuse a long-running anti-trust dispute with the Protection & Indemnity (P&I) Clubs that insure shipowners against liability risks.

A group of 14 clubs proposed several measures to meet Commission concerns over their 'no-poaching' agreement, known as the International Group Agreement (IGA), which forbids them from competing on premium rates for 12 months after a shipowner has switched clubs.

The clubs sought to make their cost structure more transparent in response to demands that they should become more 'vibrant' - shorthand for being more competitive.

But they failed to convince the Commission. “We are extremely disappointed by the Commission's reaction to our proposal,” said a spokesman for the clubs. He claimed Competition Commissioner Karel van Miert had “indicated previously” that he did not wish to undermine the system, adding: “We trust this remains the position.”

The clubs are concerned by what they describe as the Commission's offhand treatment of their proposals, but the institution is unrepentant. “They know perfectly well what our concerns are,” said an official.

The clubs say that ending the no-poaching agreement would severely hamper their operation and consequently the quality of insurance cover.

They are the only insurance group that has made the International Safety Management Code - a new measure which takes effect in July - a condition of membership. Marine hull underwriters cannot insist on the same conditions because of competitive market conditions, said Lloyd Watkins, secretary of the IGA.

“It's a factor the Commission should take into account before it takes precipitate action,” said Watkins.

The group of 14 was granted anti-trust exemption for ten years on the grounds that they should be subject to the minimum amount of discipline needed to maintain fairness and trust between them.

But the Commission refused to extend the exemption when it came up for renewal in 1995, and two years later, in June 1997, it issued a formal statement of objections.

The Commission has told the clubs that it will put aside several other objections to concentrate on resolving the no-poaching issue, but the two sides have made virtually no progress since the matter was raised.

While the case has failed to generate much attention beyond the confines of the maritime insurance sector, its outcome could have a direct impact on the public as the clubs are the main source of compensation for victims of tanker spills and other accidents with a liability limit of 3.9 billion ecu, lowered recently from 18 billion ecu.

The clubs claim that with such major commitments, the no-poaching accord is vital to support a system of buying reinsurance collectively and sharing large claims.

The Greek shipowners have stressed they do not object to the no-poaching agreement, and IGA managers have asked the clubs to present fresh proposals to the Commission or decide whether to seek oral hearings in Brussels.

This would allow them to reach a wider, probably more sympathetic audience, including the competition authorities from EU member states and the Commission's Directorate-General for transport (DGVII). The IGA group is expected to announce its next move this month.