B.1 The concept of mutuality
Insurance based on mutuality means that a Member is simultaneously both the insurer and the insured. In a P&I Club, Members get together to share each other’s risks. Since it is a mutual, certain standards are expected of and imposed upon the Members.
A number of Rules dictate how a Member is expected to behave. Cover may be prejudiced where a Member fails to comply with the standard expected.
On the other hand, where a Member meets or exceeds the standard expected, this benefits the Club as a whole. Accordingly, The Swedish Club strongly promotes loss prevention measures and initiatives.
The concept of mutuality should be applied with diligence. It does not require a complete sharing of risk. Risks which are confined to certain jurisdictions or certain types of ships or cargo may be shared amongst those in that trade but not by the whole community of Members. That is still mutuality.
Exclusions of cover are not designed to punish the member against which they are applied, but to protect the membership as a whole.
The close reliance among members on each other’s performance makes it an obligation for the Club to be selective in admitting new Members into the community. The Club, therefore, tries to form a firm opinion as to the standard of ships and management before accepting new Members.
Members can also expect the Club to administer the Rules consistently. This commentary aims to explain how the Rules apply in order to make them transparent.
Being mutual means that the clubs are non-profit making. Their income and assets are designed to cover no more than their liabilities and expenditure, their reinsurance costs and any necessary improvement of the general reserves.
It is also part of the mutual concept that premiums should be set at a reasonable level and paid in accordance with the Rules. Premiums are based on the individual Member’s loss records which are directly linked to and therefore influenced by the Members’ claims performance.
The Rules contain sanctions against late premium payers. The purpose of those sanctions is not to punish the member who is in delay, but to protect the other Members who fulfil their obligations in a timely fashion.
The Club regards it as part of the mutual concept to share experience and information gained. This can be achieved through knowledge sharing and Loss Prevention publications.