10 An internal decision by commercial banks relates to the funds to be allocated to their shipping branches,as well as the required return on those funds committed to shipping in view of the risk-returns involved.This is a decision banks are particularly concerned with, and such portfolio management issues abound in banking.Naturally,this important strategic decision depends on the relative position of shipping with respect to the other economic activities the bank is involved in. As with brokers,bank executives are increasingly asked to play the role of an informal consultant to their clients.Thus a bank's image is to a great extent influenced by the success or failure of these informal activities.It is clear therefore that a certain degree of feedback exists here,as observed about brokers'activities:the use of sophisticated decision methodologies by one actor in the shipping market will quickly filter to the others Therefore,if the use of quantitative methodologies becomes more widespread among owners or charterers t will find its place in banking circles and vice versa. 2.5 INSURANCE Insurance policies have traditionally played an important role in shipping due to the great risks involved.The maritime lore is full of stories about shipowners who have been destroyed or saved by calculated or inadvertent insurance decisions.Many stories are in the gray area between the legal and the illegal activities of shipping.A vast amount of experience exists in the field compiled by insurance and underwriting companies. From the point of view of a shipping manager the obvious decision is how to select the proper amount of insurance coverage,taking nto account the reliability of the insurance company and the costs involved.Insurance agents often complain that shipping managers usually overlook the quality of the services they offer,and concentrate instead on the (cheaper)premia offered by other (competing)companies.It is obvious however that shipowners and their financing banks pay attention to both of these aspects. The shipowner needs insurance to be covered from physical loss or damage (hull and marine),liability to third parties (protection and indemnity)and loss or interruption of earnings.Some insurance is dictated by govenmental insurance regulations,mortgagees or other contractual requirements.Beyond this,the owner can decide on the additional cover that is proper.Usually the negotiations are carried out through insurance brokers who specialize in various types of insurance (P&l,hull and machinery,loss of earnings,strikes,war or legal risks). The knowledge of the legal clauses in the contracts is of paramount importance in negotiating,perhaps even more so than the negotiation about the premium or the coverage itself.Personal relations with brokers are also of great importance as nsurance is eventually a matter of utmost good faith.Selecting the appropriate insurance organization (insurance company,underwriting syndicate or club)is also of some importance. Among the several negotiation points in an insurance contract,of relative importance are (a)the value placed on the ship and(b)the deductible amount(the amount paid by the owner over which nsurance payments are made).The value placed on the ship is negotiated betweeen the owner and the underwriters,and (in principle)reflects the ship's actual value in the (fluctuating)market.Setting a high deductible is a way of reducing premia at the expense of extra risk-which is however guaranteed not to be of catastrophic proportions.10 An internal decision by commercial banks relates to the funds to be allocated to their shipping branches, as well as the required return on those funds committed to shipping in view of the risk-returns involved. This is a decision banks are particularly concerned with, and such portfolio management issues abound in banking. Naturally, this important strategic decision depends on the relative position of shipping with respect to the other economic activities the bank is involved in. As with brokers, bank executives are increasingly asked to play the role of an informal consultant to their clients. Thus a bank's image is to a great extent influenced by the success or failure of these informal activities. It is clear therefore that a certain degree of feedback exists here, as observed about brokers' activities: the use of sophisticated decision methodologies by one actor in the shipping market will quickly filter to the others. Therefore, if the use of quantitative methodologies becomes more widespread among owners or charterers t will find its place in banking circles and vice versa. 2. 5 INSURANCE Insurance policies have traditionally played an important role in shipping due to the great risks involved. The maritime lore is full of stories about shipowners who have been destroyed or saved by calculated or inadvertent insurance decisions. Many stories are in the gray area between the legal and the illegal activities of shipping. A vast amount of experience exists in the field compiled by insurance and underwriting companies. From the point of view of a shipping manager the obvious decision is how to select the proper amount of insurance coverage, taking nto account the reliability of the insurance company and the costs involved. Insurance agents often complain that shipping managers usually overlook the quality of the services they offer, and concentrate instead on the (cheaper) premia offered by other (competing) companies. It is obvious however that shipowners and their financing banks pay attention to both of these aspects. The shipowner needs insurance to be covered from physical loss or damage (hull and marine), liability to third parties (protection and indemnity) and loss or interruption of earnings. Some insurance is dictated by govenmental insurance regulations, mortgagees or other contractual requirements. Beyond this, the owner can decide on the additional cover that is proper. Usually the negotiations are carried out through insurance brokers who specialize in various types of insurance (P&I, hull and machinery, loss of earnings, strikes, war or legal risks). The knowledge of the legal clauses in the contracts is of paramount importance in negotiating, perhaps even more so than the negotiation about the premium or the coverage itself. Personal relations with brokers are also of great importance as nsurance is eventually a matter of utmost good faith. Selecting the appropriate insurance organization (insurance company, underwriting syndicate or club) is also of some importance. Among the several negotiation points in an insurance contract, of relative importance are (a) the value placed on the ship and (b) the deductible amount (the amount paid by the owner over which nsurance payments are made). The value placed on the ship is negotiated betweeen the owner and the underwriters, and (in principle) reflects the ship's actual value in the (fluctuating) market. Setting a high deductible is a way of reducing premia at the expense of extra risk - which is however guaranteed not to be of catastrophic proportions