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Gard News 205, February/April 2012




Gard News provides an overview of the development of Gard's small craft portfolio.


To most brokers, shipowners and other operators, Gard is primarily known as a major marine insurer of larger tonnage or blue water risks, not least because of its leading position in the tanker market and substantial involvement in the ocean-going bulk and container segments.  What may come as a surprise to some is Gard's rapidly growing participation and expanding market share in what is defined as the "small craft" arena. Underwriting small craft is not new to Gard, which has been insuring local ferries and passenger vessels, fishing boats and other special small craft for P&I and marine risks for many decades. In the past, Gard underwriters, primarily dealing with and specialised in larger ocean-going tonnage, were also writing smaller tonnage as and when opportunities occurred. This meant that, over time, Gard built up a healthy small craft portfolio, as well as the skills to handle the different types of claims arising from this category of risk. From this base, in 2006 Gard's management decided to invest more resources and effort in this area, to explore further commercial opportunities but also to ensure that existing small craft clients were provided with the best service and insurance products available in the market.

As a first step in this process, a team of underwriters and claims staff dedicated to this type of business was appointed and given special responsibilities for the area - creating an in-depth specialist skill base. The team today consists of two underwriters in Norway, two in Finland and two in Sweden, all supported by underwriting assistants in the three offices, and is headed by an Area Manager based in Sweden, who also serves as the Managing Director of the Swedish office. The team is closely integrated with other parts of the Gard underwriting organisation, which means frequent and valuable interaction with other underwriting and specialist teams for the ultimate benefit of clients.

The next step was a thorough analysis of the existing book of small craft business. During this process the most important client segments were singled out and analysed, with a particular focus on the assessment of risk exposure in the various segments and corresponding need for insurance protection.  Gard's existing product suite was also reviewed, as well as its small craft risk carrier structure and the required tools for pricing of the risks. In all, this exercise provided a solid platform for further operational and strategic decisions.

Gard's small craft underwriting criteria
The Gard definition of small craft is currently tonnage up to 3,000 GT with a sub-limit of 1,500 GT for tankers. Gard's products address owners and operators of passenger vessels, fishing vessels, tugs, barges, dredgers, coastal freighters, bulk vessels, working boats and other small tonnage that comply with its underwriting guidelines. Approved trading areas are currently limited to "European short sea" and inland trading, which in practice means coastal trading and inland operations. The distinction between ocean-going vessels and coastal/inland trading is important as the risk picture is quite different in comparison. Gard's small craft products are all built on the basis of coastal or inland activities, whereas other ocean-going or "blue water" risks would be handled by staff in geographically-oriented underwriting teams.

To ensure the quality of the portfolio, it is further required that the craft be approved by a classification society approved by Gard or by the flag state's maritime supervisory authority. As to flag, national register is required. It should be underlined that the above are guidelines, and from time to time slight variations are required. Gard is broadly flexible provided the overall risks picture is still in accordance with the above parameters. One important example is when underwriting small craft fleets. In such cases, the absolute majority of the vessels need to comply with the guidelines, but from time to time Gard approves single objects included in these fleets that deviate in terms of size, value, trade, etc. These issues are frequently discussed by the underwriters in the team to ensure a common approach as to the interpretation and use of these guidelines for different risk categories and in different geographical areas.

products and risk carrier structure
Gard offers a full range of covers designed to provide full insurance protection for small craft clients. On the P&I side, the product suite includes the standard P&I product on mutual terms for those owners and operators that require this extensive cover. Gard always recommends the mutual P&I cover for tanker vessels and passenger vessels carrying in excess of 100 passengers as well as other craft as and when the mutual cover is required.  However, for the vast majority of the small craft P&I portfolio, the fixed premium P&I cover is the preferred and recommended cover solution. The maximum cover limit on fixed premium basis is USD 50 million, but for many risk categories USD 20 million is sufficient. For instance, for fishing vessels trading in Scandinavian waters, tugs and working boats, the USD 20 million cover limit is frequently used, whereas the USD 50 million cover limit is recommended for passenger vessels carrying up to 100 passengers. These fixed P&I cover options for small craft are written against Gard Marine & Energy, a risk carrier within the Gard group that is not a member of the International Group of P&I Clubs. Gard also offers hull and machinery cover, loss of hire and related interests to small craft clients with a maximum combined exposure limit of USD 5 million. Some clients prefer to buy either P&I or hull cover on a stand-alone basis, whereas others prefer to buy both covers combined. By combining fixed premium P&I and hull with Gard, the client will get access to a full cover without any gaps. This arrangement gives Gard an opportunity to offer tailor-made product solutions. For example, offering  identical inception dates for the P&I and hull covers (not necessarily 1st January or 20th February renewals), as well as providing certain administrative advantages, making documentation handling more cost-efficient for both the client and Gard. Gard has a number of products available for small craft clients, for instance its Comprehensive Charterers Liability cover. This cover is offered on fixed premium basis with a maximum USD 50 million cover limit. Gard's aim has been to develop and offer the broadest scope of marine insurance covers available in the market for small craft clients. There are many competitors in the small craft market able to offer similar covers on a stand-alone basis, but the total range of covers offered by Gard and the different combinations available can not be found anywhere else. As part of an ongoing dialogue with clients, Gard is always looking to develop its products further, and is indebted to brokers and clients for their input.  Gard very much regards its product development work as a team effort with clients and business partners.

Handling small craft claims
claims differ from claims originating from larger ocean-going vessels in a number of ways. The construction of the ships, the handling of cargo and the working environment for crews often differ. There are other important differences relating to the trading areas. operating along a coastline or inland are less exposed to some of the blue water hazards, but more exposed to other risks, for instance narrow passages in inland channels. All of this can lead to some complicated claims handling issues, which are specific for small craft. Gard's guiding principle is that claims should be handled by the people who are best qualified to handle any given category of claims. Gard has therefore appointed claims handlers specifically to handle claims originating from small craft. This ensures a structured and uniform approach to these claims to the benefit of all parties involved.

At Gard it appears that the frequency of claims in the small craft sector, both P&I and hull, is lower than for the ocean-going tonnage. However, there are similarities in the causes of claims.  Machine and navigation-related incidents constitute a major part of the hull cover incidents, while personal injury to crew and passengers represents a large share of P&I claims. Apart from the flow of average claims, small craft are occasionally hit by large or even catastrophic incidents.  In such circumstances clients will benefit from the emergency response resources and services from what is probably the largest marine insurance claims organisation in the industry. Many clients and brokers, especially in markets outside Scandinavia, require local claims handling services carried out in local languages. To be able to handle such requirements, Gard has a good working relationship with a range of selected external claims handling service providers and correspondents. These constitute a valuable part of Gard's overall service organisation.

Gard's position in the small craft market and the future
Gard is a market leader in Scandinavia for small craft marine insurance. In particular, Gard is strongly positioned in respect of P&I, where a substantial portfolio has been built up over the years, especially in Norway, Finland and Sweden. Gard has a good spread of risks in all traditional small craft segments, with particular strength in the passenger and fishing segments. Its involvement in the area of hull and machinery insurance for small craft is growing rapidly, partly because many clients prefer to get the combined P&I and hull covers from Gard.

Gard is therefore well positioned to further develop its book of business beyond current borders, while remaining committed to the provision of first class service to existing clients - many of whom have been with Gard for a long time. These clients have been key to making the service what it is today, and their long-term loyalty is highly appreciated.

Following a strategic decision two years ago, Gard is now writing risks from outside Scandinavia, primarily Germany, the Benelux region and Southern Europe, where there have been positive developments which have exceeded expectations. Together with business partners in these regions, Gard will continue to build up solid portfolios in these new areas. There are opportunities in other geographical areas, which will be followed up by Gard in a systematic and structured manner. Accordingly, to all of you clients and brokers out there that still have not talked to Gard about small craft, we are looking forward to hearing from you.

Any comments on this article can be e-mailed to the Gard News Editorial Team.