Hong Kong Yacht Insurance Market is Shaken
In a global yacht insurance market that is still reeling from 20 years of low premiums and wide cover, resulting in huge losses to insurers and subsequent about turns in insurance cover being provided Hong Kong has recently been hit by a series of losses that has shaken an already jittery sector of the insurance industry.
Added to the six yachts destroyed in the Clearwater Bay Marina fire in May 2018 and three last year in the Kwun Tong Typhoon Shelter, the weekend of 3rd and 4th July saw a huge fire engulf in excess of 20 yachts in the popular Aberdeen Typhoon Shelter, a home for yachts that has seen them increasingly crammed together as a result of the works in the Causeway Bay Typhoon Shelter and a huge surge in demand for yachts in Hong Kong, a territory already lacking in sufficient moorings let alone properly regulated marinas – a problem loudly shouted about by the yacht industry for well over a decade.
On top of this Hong Kong has recently seen yachts sinking and grounding and one must ponder the reasons as to why and what's to be done about it. Certainly, the insurance industry will react as it’s not a charity and despite the fact that statistically 19 out of 20 yacht owners will not likely have a claim, recent losses have decimated the marine insurance premium pool (commercial marine insurance as well as yachts), from which all claims are paid. As a result, all owners will be hit by knee jerk reactions likely to come from the industry. On top of this it’s likely that the government departments, particularly the Marine Department, will be forced into action to make the mooring areas safer, something that’s been long called for by industry insiders.
Many people have asked how this will likely affect yacht owners and their insurance covers. The Hong Kong insurance market has seen capacity shrinking and cover reducing over the last two years and increasingly so in 2021. The recent losses will likely see this escalate. However, now is the time for the insurance industry to react in a positive way by working with owners to reduce the chances of them having a loss and not simply slap on them higher premiums and a further reduction in cover afforded. To help move the market back into profit three main things need to happen:
Increase the pool of premium in the market
Reduce losses to the yacht insurance market going forwards.
Underwriters to actually underwrite risks rather than work to a tick box list and run away from risk.
To achieve the above yachts that currently self-insure (aside from the legally required liability cover) must be attracted to buy insurance and this is only going to happen if the insurance industry offers a value add package to persuade already sceptical owners that buying insurance is a valuable purchase, a product that’s there to assist in the management of a yacht, rather than purely to react to an accident. This will work in the favour of more experienced / specialist providers of insurance (and therefore in turn owners) as they will best know how to explain this for the greatest benefit of owners. For those who already buy insurance all too often this is bought based on price, and arranged by those not understanding it from people who also don’t understand it, and are not licenced or insured to advise on it. For owners this is disaster waiting to happen.
How insurers react to giving cover and then a claim (should it happen) very much depends on who the broker is, the risk management approach an owner has and his attitude to the cover provided. Obviously, the cover in place is equally important but the person that has arranged that cover is a very important part of the jigsaw of getting good cover and a fair claim fairly paid. Insurance gets a bad rap because, generally, only badly handled claims are shouted about. It must be remembered that an insurance cover is a contract. An owner expects his insurers to adhere to their side of the contract and its therefore only reasonable insurers expect the same of an owner. A good broker will be able to smooth the waters of what is a difficult time for an owner and his insurer. Insurance can be likened to wine where a cheap, low quality wine requiring a boost (in the form of additives) to make it last the course leaves a nasty hangover whereas a better-quality wine that often (though not always) costs more leaves a less difficult morning afterwards and a memory of a good experience.
From a safety aspect, no doubt there is a clear need to tighten up on regulations already in place and look to impose sensible new ones that assist owners in a logical and understandable manner. How the Hong Kong Marine Department will go about this remains to be seen but the insurance industry can go a long way in working with owners on risk management programmes to help them reduce the chances of a loss occurring. For the 19 out of 20 owners who don’t have claims this will be seen as a positive reaction, for those who currently don’t buy insurance it should be seen as an incentive to be part of a club that genuinely helps owners and for those who look to run their yachts on a shoestring budget, cutting all manner of corners, it should be a severe wake up call and a real threat of not being able to get insurance at all.
Out of every disaster there is an opportunity. Now is the time for the hull insurance industry to take the leap and change to help owners all the way through their cover rather than only when they have a problem, rather like the P&I Clubs currently do. It is also an opportunity for the marine and insurance authorities to sensibly tighten things up that results in a safer environment for yachts. Finally, its an opportunity for owners to look to utilise better quality insurance programmes that, while costing more, can provide better levels of service to assist them in reducing the chances of their having a claim and risking the lives of their crew, family and friends.
By Colin Dawson:Expat Marine Ltd