Fair and sustainable pricing

We take a disciplined approach to underwriting and risk selection and the Club continues to aim for a combined ratio of 100 per cent or lower. It is the aim of the insurance underwriter to ensure that the total premium or call paid by each Member of the Club represents a fair price for the risk presented by that Member compared with the risks presented by all other Members of the Club. Overall, the underwriting process must generate all the funds required by the Club.

The process has developed over many years. While the aim has never changed, the techniques used by marine cargo underwriters to achieve the fairest possible result have evolved over time. When the Clubs first started operating in the last century, each Member paid the same rate per ton; gradually more refinement was introduced to achieve greater equity, and this development has continued to the present day. Although many Members will be familiar with some of the concepts utilised by the cargo underwriters in assessing future risk, such as the acceptable loss ratio, this document sets out in detail the current policy and practices of the underwriters operating under the general direction of and in support of the policy of the Board.

In a system which has no tariff and where each Member is rated individually, the Board has a responsibility for ensuring that fairness is achieved to the greatest possible degree; the mechanisms used by the Board to do so are also outlined.

Cargo Underwriting principles

• The premium level set each policy year for the Club as a whole should generate enough income for the Club which, taken together with the investment return generated on that income, will meet the financial requirements of the Club for that policy year.

• The premium paid for each ship or group of ships should reflect the risk presented by the Member in respect of the entered ships for the forthcoming year.

• The premiums should include an element to meet the cost of less frequent large claims which are spread across the Club as a whole.
  Club overheads, including the cost of the management service and the reinsurance into the International Group Pool, should be fairly spread between all the Members.

• Large fluctuations of cost for an individual member from year to year should be avoided so far as possible.

• Within the overriding principle set out in 2, above, proper account should also be taken of the experience of a Member over a period of time.

• Whilst preserving the confidentiality of individual Member's ratings, the underwriting process should be open and understood by all Members, and be widely accepted as being fair and equitable.

Meeting principles 1-3 above cannot be a mechanical process; it requires the exercise of judgment by skilled and experienced individuals.  Principles 4-6 contribute to making certain that the judgment is fairly exercised, ensuring that there is each year a review of the past premiums compared with the actual claims experience of the Member and the Club as a whole.

In order to increase the potential for fairness, the annual renewal process for each individual Member combines a detailed analysis of his past experience combined with an assessment of the risk of his future operations, both set within the context of the view of the Board as to the likely overall Club claims experience which has been forecast for the forthcoming year.  The process is necessarily complex, given the inherently conflicting aims of accurately assessing the future risk for a Member and simultaneously maintaining continuing fairness while at the same time ensuring that the Club remains properly funded.