UKDC Publications : Statement from the Paul Vogt, Chairman of the UK Defence Club, 2007
It is very pleasing to be able to provide a report on my second year as Chairman of the Association against the backdrop of a shipping market that remains generally buoyant. In an industry which, over the years, has had its share of difficult times, a period of sustained stability and growth is more than welcome. Of course one can never be complacent. Regulation of the industry and the approach to environmental issues remain two of the key factors facing all involved in the maritime sector. This period of growth however should mean that the industry is much better equipped and resourced to meet those and other challenges in the years ahead.
The Association too has experienced very pleasing growth in 2006. The number of owned ships entered with the Association has risen by 6% to 2,522 ships at 20th February, 2007. The free reserves of the Association and its quota share reinsurer, The United Kingdom Defence Insurance Association (Isle of Man) Limited also remain strong, rising from £11.8 million at the 20th February, 2006 to £13.6 million at the 20th February, 2007. The size and financial strength of the Association should provide comfort to Members who may be in need of the Association’s assistance from time to time.
Of course, size and financial strength are only a part of the equation. The knowledge and experience of the Managers is similarly invaluable, coupled with the ability to deliver those key services through a variety of world-wide offices. This provides an unparalleled level and breadth of service to Members of this Association.
The consideration of Members cases both by the Managers and the Directors, is an integral and essential part of the Association’s day to day activities. This year has been no exception. The Association has given support to a significant number of cases in which, not only has it assisted the individual Member concerned but also the industry generally. A number of cases have been contested with the Association’s support, in order to provide clarity where previously there was legal uncertainty. That role in “shaping” local law for the benefit of the industry generally cannot be underestimated.
London continues to be the preferred venue of choice when it comes to dispute resolution within the shipping community and the majority of the legal fees incurred by the Association are paid to London based firms or their overseas offices. Unquestionably the costs of litigation in London have increased over the past 2 to 3 years. This trend has been fuelled by increasing legal costs in other, non-shipping, sectors. The Directors and Managers alike are actively considering ways of better controlling those legal costs and at the same time are committed to maintaining the level of service which has been afforded to the industry over many years.
A brief review such as this generally focuses on the immediate past year. However, we must also look to the future and as a provider of a specialised cover it is important that the Association’s product continues to meet Members’ needs and expectations, yet is competitive and is sufficiently flexible in its structure so as to meet future challenges.
In my report last year I mentioned that consideration that was being given by your Board to the Association’s future structural arrangements in light of the regulatory position governing the Association in the UK. Members will be aware that the Association is regulated by the Financial Services Authority (“FSA”). For over 20 years the Association’s cover has been categorised as marine insurance, largely because the nature of the cover was closely linked to the operation of ships and its membership drawn from shipowners and operators. In more recent times however, the FSA, the Managers and the Board have recognised that the nature of the cover is more closely aligned to the provision of legal costs coverage, albeit solely relating to disputes concerning ship operation.
As a consequence it has been agreed that the Association’s cover will, with effect from 20th February, 2008, be reclassified as legal expenses insurance. This will result in several changes most being of a technical nature. However, one change will be immediately visible and beneficial to all Members, namely the creation of a layer of cover that will be provided by the Association in any event and, in almost all circumstances, not be subject to review by either the Directors or the Managers. This will represent a change from the existing cover but will afford Members the security of knowing that at the inception of a dispute some costs will be borne by the Association.
However, for Members closely associated with some European countries this change of status may result in tax being levied upon the premium paid to the Association. However, the Board in conjunction with the Managers are exploring ways of mitigating this to avoid any disadvantage to Members likely to be affected.
In conjunction with the change to the Association’s cover, the Board also considers it timely to move away from the concept of “unlimited” cover being offered by the Association. Your Board considers that a single claim limit should now be introduced which is more in keeping with the nature of the Association’s financial scale, its capital base, the type of cover offered to its membership and the level of reinsurances purchased by the Association. The Board is however, committed to ensuring that the cover which is provided is as wide as any of its competitors and therefore it is proposed that a single claim limit of US$15 million be introduced, again with effect from 20th February, 2008.
These changes do of course require your support. Details of the various changes will be sent out to all Members in advance of the Association’s Annual General Meeting in September, with a view to seeking the agreement of the membership at that meeting.
The Association continues to build on its very solid foundations. The changes I have outlined above are important and indeed necessary. In this changing regulatory environment it is important that the Association’s cover is correctly structured, both to comply with the insurance requirements of various countries and yet able to provide a cover and service to its world-wide membership that are undiminished and substantially indistinguishable from those that Members have rightly come to expect.
Finally, I would like to thank my fellow Directors for their support and sound advice over the last year. Their dedication and tireless commitment to the Association’s affairs is second to none. Equally, on behalf of the membership and the Board I would express our appreciation of the work of the management team in protecting the interests of the Members and administering the Association in a prudent and efficient way.
Paul Vogt
Chairman
The United Kingdom Freight Demurrage and Defence Association Limited.
July 2007