Insurance Risk Management

Underwriting Guideline & Risk Profile

–        Risk Management

Risk management streams in all the club’s procedures from assessment the applicants to claim handling in order to maintain the overall level of the risk within Kish P&I club.

To have an optimal risk management system, KPI tries to develop risk management system as an integrated part of its organization. All risk exposures should be identified and monitored in KPI in order to have secure and competitive financial situation. KPI managers fully understand that a comprehensive and integrated risk management system helps the Club to provide the qualified services to its valuable members.


Risk Assessment & Premium Rating

As a P&I club, KPI (Kish P&I) aims to establish risk management system in its organization in order to have a systematic approach to risk assessment and premium rating. KPI believes development of risk management as an integrated part of organization is essential for each P&I club. As a consequence of this approach, risk profile can give a general overview to club’s risks and underwriting guidelines considered as a brief look to club policy in this regard.

P&I clubs are mutual, non-profit making institutions which are established by ship owners in order to increase their strength against the risks may expose their activities. So, knowing about the risk exposure and premium rating philosophy of a P&I club can give a good outlook to all stakeholders which are seeking valuable information about club situation.

Risk assessment can be considered as a basis for premium rating. Current situation and historical records of club’s members should be analyzed in order to assess the risk exposure of club. For premium rating other factors such as costs (administrative and claim-related costs) and free reserve should be considered as well. For premium rating these items to be among those which needs to be taken into account.

  •                  Sources of risks.
  •                  Qualitative Risk Analysis
  •                  Loss Records Analysis
  •                  Risk Aversion & Maximum Acceptable Loss ratio
  •                  Reinsurance Premium
  •                  Free Reserve
  •                  Costs (Administrative & Claim-Related)


Sources of risks

There are various sources of risks exposing ship owners. P&I coverage usually includes typical sources of risks. For these can be pointed as Cargo Contamination, Collision, FFO (Fix and Floating Object), Pollution, Crew (Medical Attention and treatments), etc.


Qualitative Risk Analysis

These are some qualitative factors lead to serious sources of risk and should be analyzed to determine their effect on risk exposure of each member. As each member has its own management, operation, type of vessels, etc., it has his own risk. Some of the important qualitative factors would be considered in risk assessment could be mentioned as: which are to be considered in risk assessment process have been numerated as below;

  • Management
  •  Condition survey
  •  Age
  •  Type of vessel
  •  Nature of Operation
  •  Area of Operation
  •  Crew


Historical Loss Records

Previous performance of each member can give a general outlook to its potential exposure to various sources of risks. Famous approach in insurance industry for studying historical performance is statistical analysis (usually known as actuarial science) which are conducted in order to extract valuable information from historical performance of members.


Risk Aversion & Maximum Acceptable Loss ratio

After all of procedure needed for risk assessment would be conducted, risk Aversion of club comes into account to give maximum acceptable loss ratio. Risk Aversion would be measured and reflected in risk management policy of club. It would be useful for:

  •  Premium rating: Maximum acceptable loss ratio of club would be determined by member’s risk Aversion and club’s mutual policy.
  •  Investment policy: Maximum tolerable risk for club is to be known in order to develop its investment policy.


Reinsurance Premium

The P&I claims would normally be covered by  P&I clubs so far as they are limited to the club’s retention layer , for the claims above club’s retention layer  the coverage need to be provided by reinsurers. Therefore reinsurance premium is another factor which affects the total premium. It usually depends upon the proportion of risk taken by Reinsurer.


Free Reserve

Another important factor which affects the risk assessment and premium rating is the level of reserves which need to be maintained by the Club. KPI believes free reserve should be maintained regarding these items:

  •  Regulation requirements
  •  Club policy (in minimum reserve maintenance)



In addition of claims related expenses and costs (risk’s costs) there are two other main categories which are added to the incurred expenses:

  •  Administrative costs
  •  Claim handling and loss prevention costs