IRS ACCEPTED INTO IACS FOLD - What is the impact for Marine Insurer ?

23 Jun 2010 is a day of great significance to Maritime industry of India as the Nation’s classification society has become a full member of the International Association of Classification Societies.


The Nation’s own classification society IRS (Indian Register of Shipping), established in Mar 1975, had been an associate IACS member since 1991, but that category was abolished in October 2009 when the association introduced single-class membership. The conferring of Full member status at the meeting of IACS Council in Hamburg assumes extra significance when you know that there are only 10 members in this elite group and IRS is 11th of the prestigious association of most advanced ship classification societies of the world. The membership according to IACS, is a reflection of the quality philosophy and high quality standards imposed by the IRS.

the defining moment - IACS chairman with IRS chairman

Polish Register has also been pushing hard for an entry after the acceptance of IRS which in effect is the first new member of IACS after the introduction of new membership rules introduced last year in the wake of a European Commission competition investigation. IRS with its long association with IACS as an associate member was the most likely candidate to be considered for full membership. Brussels closed its 22-month antitrust investigation into IACS membership last year after IACS agreed to a series of legally binding commitments as part of the case settlement which included an opening up of its membership rules.


For enjoying this new found status, you need to know something about classification and its impact in Insurance.


WHAT IS CLASSIFICATION and who are IACS :


The International Association of Classification Societies (IACS) is a gathering of ten classification societies, headquartered in London. It was founded on September 11, 1968 in the city of Hamburg . Dedicated to safe ships and clean seas, IACS makes a unique contribution to maritime safety and regulation through technical support, compliance verification and research and development. More than 90% of the world's cargo carrying tonnage is covered by the classification design, construction and through-life compliance Rules and standards set by the ten Member Societies and one Associate of IACS.


IACS is a non-governmental organisation which is allowed to develop guidances for the International Maritime Organization(IMO). The classification societies are involved at the design, construction and through-life compliance rules and standards. The mission of classification societies is to contribute to the development and implementation of technical standards for the protection of life, property and the environment. Classification societies establish and apply technical requirements for the design, construction and survey of marine-related facilities, principally ships and offshore structures. These requirements are published as classification rules. Classification societies maintain significant research departments that participate in the on-going development of technical safety standards.

Classification rules are developed to contribute to the structural strength and integrity of essential parts of the ship’s hull and its appendages, and the reliability and the function of the propulsion and steering systems, power generation and those other features and auxiliary systems which have been built into the ship in order to maintain essential services on board for the purpose of safe operation of the ship. Classification societies are not guarantors of safety of life or property at sea or the seaworthiness of a vessel because the classification society has no control over how a vessel is operated and maintained in between the periodic surveys which it conducts.

The owner of a ship that has been designed, built and tested in accordance with the appropriate rules of a class society may apply for a certificate of classification from that society. The society issues this certificate if it is verified, upon completion of relevant plan approval and surveys, that the ship complies with the rules. All classification surveys are carried out by qualified surveyors using mainly visual inspection and sampling techniques.

A ship is maintained in class provided that, in the opinion of the class society concerned:
- the ship has been presented for surveys in accordance with the classification rules;
- the surveys confirm that the condition of the hull, machinery, equipment and certain appliances remain in compliance with the applicable rules at the time of the survey.


INSURANCE IMPLICATIONS :


Cargo Policies have their terms and conditions going by the clauses attached. When the transit is by sea, the coverage is governed by Institute Cargo clauses A / B / C – these do not make any comments / restrictions on class of the vessel but there would be a specific mention which would state that ‘this contract is subject to the Institute Classification Clause’.


This is an express condition though classification of vessel is almost a fundamental requirement of commercial shipping and virtually all vessels would be classed.


There are two clauses that were being used by the cargo insurer.


1) The Instt Classification Clause 1/8/97 stated that the marine transit rates agreed for the insurance would apply only to cargoes and interests carried by mechanically self propelled vessels of steel construction, classed by one of the societies which were named as : Lloyds Register, Americal Bureau of Shipping, Bureau Veritas, China Classification society, Germanischer Lloyd, Korean Register of Shipping, Maritime register of shipping, Nippon Kaiji Kyokai, Regisro Italiano. Again there was link to the type of vessel and its age.


But this had more to do with the premium as non-classification attracted a loading of 0.10% (for long……..)



Significantly, vessels registered with IRS were exempt from non-classification extra by Indian Insurers - any vessel with Indian flag was exempt from 'non-approval' extra, as all Indian vessels were treated as approved by the erstwhile GIC


2) The other clause that is being used by most Insurers is Instt. Classification clause 1/1/2001. This unlike the earlier one does not mention the approved Registries but states that the coverage would apply only when the vessel is classed with a society which is a member or Associate member of the IACS or a National Flag Society which is further defined as a Society which is domiciled in the same country as the owner of the vessel in question which must also operate under the flag of that country.


Here those approved were not listed out but insured persons were directed to refer to the website of IACS for finding out those societies which were its members. 


This clause makes a categorical submission that if the carriage is not by such vessels, it must be notified to Underwriter for rates and conditions.


But these may not be practicable in small loads and containerised cargo, where the shipper may not have any control on the ship and for small values it would be difficult beyond a point to check or confirm whether the carriage does comply with the requirements.


Again, here vessels IRS classed were exempt as IRS was associate member of IACS.


3) However, in Hull Insurance, this is significantly different as the Institute Time Clause contains express provision that           “Unless the Underwriters agree to the contrary in writing, this insurance shall terminate automatically at the time of change of the Classification Society of the Vessel, or change, suspension, discontinuance, withdrawal or expiry of her Class therein, provided that if the Vessel is at sea such automatic termination shall be deferred until arrival at her next port. It is also expressed that cover shall terminate automatically upon any change, voluntary or otherwise, in the ownership or flag, transfer to new management, or charter on a bareboat basis, or requisition for title or use of the Vessel, provided that, if the Vessel has cargo on board and has already sailed from her loading port or is at sea in ballast, such automatic termination shall if required be deferred, whilst the Vessel continues her planned voyage, until arrival at final port of discharge if with cargo or at port of destination if in ballast.


Sure this would generate some interest for those interested in Marine insurance and Indian Maritime industry. As usual look forward to your feedback


Regards
Sampathkumar S