CONSOLIDATION in the protection and indemnity sector could see the number of International Group affiliates reduced by half within five years, according to one chief executive. 

Skuld is open to dialogue on the issue as long as the right operating model is in place, said Ståle Hansen, who backs recent praise for the Scandinavian model of P&I from broker Tyser.

It said that using proceeds from commercial hull, war risk and energy cover to subsidise mutualism represents a viable diversification for IG clubs.

“From Skuld’s perspective, and my personal perspective, there doesn’t need to be 13 clubs,'' said Mr Hansen in an interview. “But there needs to be sufficient competition and choice for shipowners. Skuld will always be open to dialogue when it comes to consolidation.

“However, it’s important for us to do it on an operating model that supports the strategy we have today. Whether it’s 13 clubs or six or seven clubs, for the shipowners, fewer clubs but bigger clubs would be beneficial.”

The sector's previous attempts at mergers — including talks between Britannia and UK in 2016 — have fallen through, and the state of the market must be factored in.

While timing is difficult to call, Mr Hansen is expecting consolidation within a five-year horizon.

He also highlighted what he regards as the advantages of the Scandinavian way of doing P&I.

“Where we differ from others, particularly some of the British clubs, is that the three Scandinavian clubs have in-house management,” he said. “We have diversified the product offering within the club itself, instead of using a management company to create diversification through services or products.”

All profits ultimately benefit the mutual membership who are the owners of the club, instead of management company shareholders.

Where monoline clubs ultimately must rely on pricing to bring in revenue, Skuld, Gard and the Swedish Club can also look to revenue from commercial activities, which reduces volatility.

In addition, Mr Hansen came out strongly in defence of the pool system, even though his club is among those facing increased payouts after the recent spate of major casualties, despite not incurring any pool claims itself.

“The pool system is still fit for purpose, although it has been heavily affected this year. I find it difficult to see an alternative that could be run on an equally cost-efficient basis.”

Any club can find itself facing a major claim at any time, and club-by-club recourse to the reinsurance market could only work out as more costly.

While clubs that do not currently face large claims are naturally concerned about increased costs, the pool still functions well to even out spikes.

Mr Hansen said that Skuld has coped well with coronavirus from an operational standpoint, with its IT systems meeting the challenge of having staff working from home.

Service levels and documentation remain unchanged, although there have been delays on handling larger claims as a result of travel restrictions.

Skuld does have some entered cruise tonnage and there have been claims, but its exposures on cruise are not as large as some other clubs. There have also been challenges on account of the crew change crisis, including repatriation issues.