Why did shipowners form protection and indemnity clubs?

Shipowners formed protection and indemnity (P. and I.) clubs in the 19th century to address the substantial increase in potential liabilities that accompanied the advent of steam-driven vessels made of iron and steel.1

Because hull underwriters at the time refused to cover more than 75 percent of collision liability—fearing that full protection would discourage owners from exercising proper care—shipowners needed a way to cover the remaining 25 percent, as well as other significant operational risks. By banding together into mutual associations, shipowners could insure one another against liabilities to which they were all exposed, including:1

• Cargo damage1
• Personal injury1
• Damage to fixed objects such as piers and bridges1
• The remaining 25 percent of collision liability not covered by standard hull insurance1

These clubs proved highly effective, and by 1973, operators of approximately 80 percent of the world’s ocean tonnage were insured through these British-based associations and their international affiliates.1