P&I Insurance and How It Works
Protection and indemnity insurance covers a shipowner's liability to third parties. How P&I clubs work, what they cover, pay to be paid, the International Group pool and rules in Türkiye.
Protection and indemnity (P&I) insurance is the marine liability cover that pays a shipowner's legal liabilities to third parties: death or injury to crew and passengers, cargo loss and damage, oil and hazardous substance pollution, wreck removal, collision and property damage. It is usually bought through a P&I club, a not-for-profit mutual association owned by the shipowners and charterers it insures. The twelve clubs of the International Group of P&I Clubs cover about 87% of the world's ocean-going tonnage.[1]
P&I and Hull Cover Compared
The quickest way into P&I is to set it beside hull and machinery (H&M) cover. H&M pays for damage to the ship. P&I pays what the owner has to pay somebody else.
| Hull and machinery | P&I | |
|---|---|---|
| Interest insured | The ship herself | The owner's liability to third parties |
| Typical provider | Insurance companies and markets | Mutual clubs and fixed premium insurers |
| Premium | Fixed | Advance call, with supplementary calls possible at a club |
| Typical claim | Hull and engine damage | Cargo, injury, pollution, wreck removal |
How the Clubs Began
Underwriters were reluctant to take on open-ended liability, so shipowners started insuring one another. The first association is usually said to be the Shipowners' Mutual Protection Society of 1855, which took on loss of life, injury and collision losses beyond the limits of marine policies. Hull policies paid three-quarters of a collision liability and left a quarter with the owner, a gap early clubs moved to fill.[2][3] Liability for cargo came in during 1874, and that second class is the "indemnity" in the name.[2]
How a P&I Club Works
Each club is an independent, not-for-profit mutual owned by its shipowner and charterer members. A board elected from the membership oversees it and professional managers run it day to day.[1] Members are insurer and insured at once. Annual calls follow tonnage and risk. If a policy year's claims run ahead of forecast, the club can levy a supplementary call on all members.[3] The club year starts at noon on 20 February, which is why renewal talks fill the winter months.
What P&I Insurance Covers
Club cover is built around risks itemised in the rules.
| Heading | Example |
|---|---|
| People | Death or injury to crew and passengers |
| Cargo | Loss or damage |
| Pollution | From the ship or her cargo |
| Wreck | Wreck removal |
| Property | Damage to fixed and floating objects |
| Collision | Collision liability not met by H&M |
| Legal costs | Defence cover, a separate class at many clubs |
Sources: Gard, Protection and Indemnity Cover; International Group.[1][3]
Anything not itemised stays out unless the board uses its discretion under the Omnibus Rule. Unusual contract terms that most members do not use are restricted, and so are avoidable and expensive risks such as delivering cargo without an original bill of lading. Some extras can be bought at a fixed premium, and a deductible stays with the member.[3] War risk sits outside standard P&I and is placed separately. Details differ between clubs and change every policy year, so the member's own rule book is what counts.
Pay to Be Paid
One of the core principles is pay to be paid. A member recovers only what it has already paid out of its own funds, and the club's obligation runs to the member rather than to the claimant. The House of Lords confirmed in the Fanti and Padre Island cases of 1990 that third parties could not go directly against the club.[4]
The exceptions have grown. Club rules have waived the requirement for seafarers' claims since 2009. The UK's Third Parties (Rights against Insurers) Act 2010 extended this to stevedores and passengers for claims after 1 August 2016. In December 2024 the French Cour de Cassation allowed direct actions against clubs in certain tort cases, such as dock damage. In England the rule still worked as a defence in the July 2024 High Court decision in MS Amlin Marine NV v King Trader.[4] The compulsory insurance conventions also give victims direct action against the insurer. The outcome turns on the facts and on the governing law.
Claims and Letters of Undertaking
Clubs keep correspondents in ports around the world. The International Group's guidelines describe them as the eyes and ears of the club. They arrange surveyors and lawyers and help gather evidence.[5] When a ship is arrested for a claim that falls within cover, the club can issue a letter of undertaking (LOU). If the claimant accepts it as security, the ship goes free and the owner avoids tying up a bank guarantee.[6] Acceptance depends on the claimant and on local practice. In Türkiye, for example, a club letter may be taken by agreement, while the listed forms of security are a Turkish bank guarantee, cash or a mortgage on real estate.[7] The legal framework for arrest is covered under maritime law.
The Pool and Reinsurance Programme
International Group clubs share large claims with one another, which gives them a capacity that insurers outside the Group find hard to match. This is the structure for the 2026/27 policy year.
| Layer | Amount (USD) | Who pays |
|---|---|---|
| Club retention | First 10m | The member's club |
| Pool | 90m xs 10m | All 12 clubs |
| GXL Layer 1 | 650m xs 100m | Open market and private placements |
| GXL Layer 2 | 750m xs 750m | Open market |
| GXL Layer 3 | 850m xs 1.5bn | Open market |
| Collective overspill | 1bn xs 2.35bn | The clubs collectively |
Source: International Group, 2026/27 GXL structure.[8]
Take a claim of USD 500 million. The member's club pays the first 10 million, the twelve clubs share the next 90 million and GXL Layer 1 takes the remaining 400 million. A USD 3 billion claim would run through the whole programme and reach the overspill above USD 2.35 billion.
You may still see references to 13 clubs, but North and the Standard Club merged into NorthStandard in 2023. The twelve are American Club, Britannia, Gard, Japan P&I, London P&I, NorthStandard, Shipowners, Skuld, Steamship Mutual, Swedish Club, UK P&I and West of England. Fixed premium insurers operate outside the Group and do not levy supplementary calls.[9] Their limits and acceptability vary.
Compulsory Insurance Rules
No single universal text orders every ship to carry P&I. Several instruments, though, require insurance and a state certificate for particular risks, and clubs issue the blue cards that members need to get them.
| Instrument | Subject | Scope |
|---|---|---|
| CLC 1992 | Oil pollution | Ships carrying oil in bulk |
| Bunkers Convention 2001 | Bunker pollution | Ships over 1,000 GT |
| Nairobi Convention 2007 | Wreck removal | Ships of 300 GT and above |
| EU Directive 2009/20 | Maritime claims | Ships of 300 GT and above |
| MLC 2006 (2017 amendments) | Abandonment, death and long-term disability | Ships under the MLC |
The MLC amendments entered into force on 18 January 2017 and require a certificate of financial security on board, which clubs issue to members. Wages and repatriation paid in abandonment cases are not standard P&I cover, and the club recovers them from the member.[10]
Rules in Türkiye
Türkiye is not a party to the Nairobi Convention, and wreck removal there falls under the Port Act and the Turkish Commercial Code.[7] An additional directive of 9 January 2025 from the Directorate General of Maritime Affairs rejects P&I policies from insurers not on the Ministry's list. Such insurers had to meet the conditions and register in the Port Management Information System from 20 February 2025, failing which the ships they insure may not enter Turkish ports. The move followed accidents involving policies that turned out to have been cancelled.[11] In December 2022 tankers queued at the entrance to the Straits after Türkiye asked for additional insurance confirmation.[12] The club's local correspondent is the place to go for the current position.
Membership in Practice
A ship's class and flag both count when a club assesses an entry, and a heavy claims record shows up in the premium. Sanctions have kept the insurance question live, and who really insures a given ship is now a routine question from ports and counterparties. Off-spec fuel disputes usually belong to freight, demurrage and defence (FD&D) cover, a separate class at most clubs. Having a ship's documents in order before a fuel oil or gas oil stem makes those matters simpler.
Frequently asked questions
What is P&I insurance?
Protection and indemnity insurance is marine liability cover for a shipowner's legal liabilities to third parties, including cargo, injury, pollution, wreck removal and collision.
What does P&I stand for?
Protection and indemnity. Protection is the original cover for loss of life, injury and collision liability, and indemnity is the cargo liability added in 1874.
What is a P&I club?
A not-for-profit mutual association owned by its shipowner and charterer members, who are insurer and insured at once. An elected board oversees it and professional managers run it.
What does P&I insurance not cover?
Damage to the ship itself belongs to hull and machinery cover, and war risk is placed separately. Risks not itemised in the club rules stay out unless the board decides otherwise.
Is P&I insurance compulsory?
There is no single universal requirement, but CLC, the Bunkers and Nairobi conventions, EU Directive 2009/20 and the MLC require insurance or financial security for particular risks.
How many P&I clubs are there?
Twelve in the International Group. Other clubs and fixed premium insurers operate outside it.
What is the difference between H&M and P&I?
H&M covers damage to the ship. P&I covers what the owner has to pay to others.
Which clubs belong to the International Group?
American Club, Britannia, Gard, Japan P&I, London P&I, NorthStandard, Shipowners, Skuld, Steamship Mutual, Swedish Club, UK P&I and West of England.
Sources
- International Group of P&I Clubs. About.
- Wikipedia. Protection and Indemnity Insurance. Used as a secondary source.
- Gard. Protection and Indemnity (P&I) Cover.
- UK P&I Club. Pay to Be Paid Rule, 3 April 2025.
- International Group of P&I Clubs. Guidelines for Correspondents, 2014.
- Gard. Shipowner's Hero: Club Letter of Undertaking.
- The Legal 500. Türkiye: Shipping, comparative guide.
- International Group of P&I Clubs. The International Group Pooling and GXL Structure for the 2026/27 Policy Year.
- Skuld. Renewal Update 2, Policy Year 2026/27; International Group of P&I Clubs. Group Clubs.
- Swedish Club. International Group MLC FAQs for Members.
- Lockton. Change in Mandatory Insurance Requirements for Vessels Calling at Turkish Ports, 15 June 2025.
- Cyprus Mail. Why Are Oil Tankers Stuck in Turkish Waters, 9 December 2022.
