Yacht Insurance – Why the change? Part 2
In June Colin Dawson wrote the first of a several part series, trying to answer some of the questions he is regularly asked by clients when discussing their insurance renewals. While no one wishes to have any increased costs anywhere, especially at present, the changes to the yacht insurance market were a long time coming after years of falling prices, increasing competition and large numbers of expensive claims. This article continues on with more insurance questions and answers…
So, you are asking me to pay more premium for less cover while the value of my yacht has gone down, how can this be?
The simple answer to this is that while premium has increased it will not have increased as much had the value not been reduced to reflect a fair current market value. All insurers are looking for ways to ensure their future in an uncertain market, especially after years of paying heavy claims with premium income failing to sustain the losses being paid. Sustainability of the yacht insurance market is not based on premium alone, rather the extent of cover, level of deductibles and risk management responsibility of the owner all also play an important part. The challenge being faced is that some insurers are not underwriting logically and there are sweeping changes and requirements being made no matter the yacht or its location. Its therefore hard for owners to understand why certain changes are being made, and the temptation to simply move to a cheaper option is always there. This is not often the best answer for an owner though. It should be remembered that in most cases brokers and insurers do not wish to lose clients and therefore if you do not agree with the renewal terms offered a discussion should take place with your broker about how best to mitigate the changes being asked for. A good broker will be able to listen to his client and understand his needs. In turn he should be able to discuss these needs with insurers. So long as what is being said is reasonable and logical insurers will, more often than not, be prepared to work on a compromise.
If I reduce the value of my yacht will the premium go down?
In an economic environment where everyone is looking to reduce costs reducing the value of a yacht seems a quick way to achieve a lower premium. However, does this really result in a cost saving for the owner? It is important for a yacht to be insured for a fair current market value at the inception of a policy year. If a yacht is obviously over valued insurers can reserve the right to investigate this in the event of a Total Loss and pay you an amount they feel is fair and reasonable. In fact, all polices have a clause allowing insurers to replace a vessel with a similar vessel rather than paying cash, though this is seldom exercised. If a yacht is undervalued and there is a partial loss then insurers will, after application of the deductible, pay you the proportion of the loss accordingly. It’s therefore very important to provide a fair and reasonable value when arranging insurance.
A good broker and insurer should spot a heavily over or under valued yacht and discuss this with you. However, as an owner its your responsibility to present fair and accurate information to the broker which he uses to obtain quotes for you. Once at the quoting stage most insurers will offer an Agreed Value policy, meaning that this is the amount to be paid in the event of a Total Loss. Some operate a Market Value programme where, like motor insurance, insurers will ascertain a value of the yacht at the time of the loss and this is what will be paid out. At the same time, most insurers operate new for old polices, meaning that any partial loss will be covered in full (after application of the deductible) with new parts being paid for to replace the old damaged parts. However, some insurers will provide for depreciation in their policies meaning that the age of the yacht and parts involved will be taken into account and pay-out will reduce accordingly. As such, it’s well worth reading the policy provided to check on what basis you have insurance. If in any doubt ask your broker to explain how your policy works.
My car insurance has a No Claims Bonus, why doesn’t my yacht insurance have the same?
Car insurance premiums start very much higher than yacht insurance premiums, at about 4%. With this margin there is room for generous NCB’s. Yacht insurance premium generally starts below 1% of value meaning that there really is no room to offer large and continuing NCB’s. It’s fair to say that an NCB can be an incentive for an owner not to make a claim or move insurance based on cost but experience has shown that this is not often a factor used by owners when deciding where their insurances are to be placed.
As always, the value of an insurance policy lies in the cover afforded, quality of broker and ability of the insurer used, it’s not in the premium paid for it. A common complaint is that insurers always seem to get out of a claim by something in the small print. Its true that in the old days insurance policies were written in legal language which often came in a small font size. If someone is trying to hide something by producing small print there will be a reason for it, and likely not a good one. However, over the last 20 years or so policy wordings have changed to there being many more ‘plain English’ language policies in full font size. While a broker is required to point out salient points of a policy to a client it’s impossible to guess what the client will and will not understand or feel is important or not. As such all brokers should implore a client to read their policy and ask questions if there is anything that is not fully understood. Only when a policy is properly understood will a client not face nasty surprises in the event of a claim.
If readers have any questions or comments on the topics raised in either of these two articles please contact Colin directly on email@example.com