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[TradeWinds] KPIC tackles unfair international group contract wording  
administrator 17-07-03 18:09  

KPIC tackles unfair international group contract wording

A major challenge facing the Korea Shipowners’ Mutual Protection & Indemnity Association (KPIC) is the wording used in many contracts, from finance to freight, which specify a ship should have cover from an International Group club.

According to KPIC’s top manager, Bay Moon, Korean shipowners generally want to support KPIC but are constrained by contractual conditions in loan and other ship finance agreements.

“I don’t think there are many people in ship finance who have a problem with us but they still automatically use an International Group only clause,” Moon noted.

“It is not a reflection of our claims paying ability, claims handling capability or the acceptability of our letters of undertaking. We provide proper service,” he added.

It is the same in terms of both time and voyage charter parties, contracts of affreightment and commodity sales contracts, with goods being shipped on cost, insurance and freight (CIF), or free-on-board (FOB) terms also making little difference.

Major traders such as Glencore, Bunge, Cargill and BHP, even deals for the import of strategic commodities to Korea, all specify International Group cover, according to Moon.

“We want to see this kind of restriction lifted. It won’t be easy as they have been used for tens of years,” he said.

“We are going to see ship financiers, major traders, Korean importers and the banks to ask them to be fair. Lots of Korean shipowners want to support the Korean club,” said Moon.

Another threat to KPIC is the growing interest of South Korea’s insurance companies in the P&I market.

Marine insurance accounts for only 0.8% of Korea’s non-life premiums after falling 14% last year. Hull is only 0.3%, with P&I rather less, so far from being a significant element.

But people working in the marine departments of the insurance groups are fighting for career survival so it is important for them to attract new business.

Consequently, the insurers have been developing partnerships with foreign fixed premium insurers offering cover at very low rates.

The target vessels are as small as 100 gross tons (gt) but Moon sees that if the initiative is successful interest will move up to 1,000 gt, then to 5,000 gt and edge into KPIC's core market.

Moon says about 44% of KPIC business is insuring vessels below 20,000 gt.

Moon is critical that there is no added value in the arrangements between Korean insurance companies and foreign fixed premium providers, with cover effectively 100% passed through to the overseas insurer.

And at the other end of the ship size range, KPIC is under increasing attack by the group clubs.

Moon admits it used to be KPIC pursuing International Group shipowners but sees the tables are now turned with foreign clubs offering lower premiums either directly or through Korean brokers.

“It is a very aggressive situation but as a fixed premium player we have to set the proper price,” he added.

But he also accepts that Korea’s shipowners welcome strong competition for their business and also benefit from visits by International Group clubs who can help with information about wider market trends.

“Korean shipowners are still struggling with the low freight market. Competition is very intense and suppressing P&I premiums,” said Moon.

But Korea’s Insurance Business Act could be helpful in this respect.

The act requires insurers doing business in Korea to be licensed.

A shipowner can do a deal with a foreign insurer but not within the country.

So there cannot be face-to-face meetings or contracts signed by the insurer or broker in the country.

Foreign P&I clubs have been active in Korea for 60 years with the act more ignored than observed.

Moon says KPIC is not complaining about the activities of foreign rivals but suggests they should “respect the regulations and behave more cautiously than previously”.


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