Yacht Insurance – Why the change?
As everyone in the yacht industry now knows, yacht insurance has changed dramatically from where it was 18 months ago. These changes are likely to continue for the foreseeable future and, while many see it as unreasonable that they are now paying higher premiums, suffering higher deductibles while living with less cover and much tighter control, these changes are getting yacht insurance back towards an even keel.
Currently yacht insurance is economically unsustainable. Unless changes occur, insurers will continue to pull out of the sector, with many owners then finding themselves unable to obtain insurance at all. This may seem harsh (and it is true to say that there are a lot of illogical decisions being made by insurers at present, compounding the problem) but for most owners their premium is still less, with lower deductibles and wider cover, than it was 15 years ago. With the present changes it is more important than ever to look closely at who is offering you cover and what you are getting for your premium. Price is important, but it makes no sense at all to have a cheap premium for cover that does not pay when the chips are down. Better, surely, to pay more for a professional programme that gives you what you expect when it is needed? Think cheap wine from eastern Europe vs. a good Bordeaux.
In most instances, certainly for motor yachts, owners do not get involved with the arrangements of their insurances. Those arranging insurance cover need to justify any changes to their boss, especially if the recommendation is to pay a higher premium than others that are available. As an insurance broker, every day we are asked questions as to why insurances are changing. Over the next few monthly newsletters Expat Marine, a specialist yacht insurance broker with over 25 years’ experience in the region, will goes through some of these questions and attempt to answer some of the issues raised. We will look at and discuss three questions each month, and will try to keep answers as short as possible. Obviously we can't cover every angle in these short answers, but we hope this will help to explain some commonly raised issues, and to make those recommending cover more comfortable in what they are recommending… and why. We are very happy to receive feedback, and to discuss in greater depth if you wish.
Why has my premium increased when I have not had a claim?
Insurance acts like a pond into which premium flows and from which claims are paid as risk is spread (either directly or through reinsurance) amongst many insurers.
The pond needs to maintain a certain minimum depth for those in it to survive.
A claim is a pebble thrown into the pond: obviously, the bigger the pebble the bigger the ripples. All is fine as long as the claims are sustainable, and the ripples don’t flood over the sides of the pond. But if the pebbles become rocks, and cause waves that overflow the pond…
Some of the water in the pond is lost as leaks appear in the form of wide cover. Over the past 20 years rainfall has suffered a continual decrease, meaning that there has not been enough water to fill the streams to keep refilling the pond.
With increasing premiums and deductibles the hope is that the leaks will be plugged, the streams flow and the pond fill up again. With changing conditions of cover and more strict attention to surveys, Class, quality of crew and maintenance levels, the should turn back into pebbles and the flooding reduce.
Why am I being asked for a survey and why should I pay for it?
A survey can be seen as a camera for insurers to understand the condition of a yacht, how it is looked after, how it is crewed, and what its approach to safety is. While an owner may believe he is maintaining his yacht to a high standard, there will likely be areas that are missed or overlooked. While insurers will generally ask for a survey when a yacht reaches 10 years of age, a survey may now be asked for earlier as insurers become more focussed on loss prevention
In reality, a survey should be built into an owner’s maintenance programme. Superyachts generally require annual surveys of increasing severity over time. For non-superyachts it might be sensible to look at a full out-of-water survey with a valuation every 2 to 3 years. This might not be a requirement of insurers, but it will really show the owner the condition of his yacht, and allow him to set a maintenance programme and employ crew accordingly. To get the most value from a survey this should be as tough as possible, right up to the level of a full pre-purchase survey, as this will give the owner a full picture of his yacht. It costs money, but it is safer and cheaper to find a problem while on the hardstanding than out at sea. As the airline people remind us, “If you think safety is expensive, try having an accident!” Besides, a well-maintained yacht will always bring rewards when it comes to its selling price.
Why so many questions? The other broker does not ask so many questions…
With any insurance it is important to present insurers with all the information that will or could possibly affect the way they look at the risk. If this is not provided, insurers have the right to walk away from a claim, to change terms at the time of a claim, or reduce an amount paid depending on which law the insurance adheres to.
Until recently insurers have been less demanding in the information they have required to insure a risk, and have paid claims with less scrutiny as the market became more and more competitive. With recent changes in the insurance market, compliance and accounts people are playing a far greater part in the underwriting process, reducing the flexibility of underwriters, and significantly increasing the scrutiny of any claims.
This should not necessarily be seen as reluctance to pay claims on the part of the insurers. Paying claims can be a long and frustrating process, and it needs to be understood that the insurers now have to be far more careful, and are being scrutinised themselves, throughout the entire process. Just like someone should be when choosing a cover, insurers now need to be much more thorough in their work before paying a claim. Underwriters themselves are being a great deal more careful in the way they underwrite a risk.
No longer are insurers hungry for business. Rather than doing anything possible to win business (as has been the case over the past 20 years), they are happy to walk away if not 100% comfortable with the risk presented to them. Increasingly we are finding risks that insurers simply do not wish to insure. The more information provided to an insurer, the better the view they have of the risk, resulting in more appropriate terms being offered. This will reduce the likelihood of a problem arising in the event of a claim.
A good insurance broker should not be afraid to ask the right questions of an owner or Captain, or suggest ideas that will help in the risk management operations of a yacht. In turn, a quality owner/Captain should be happy to disclose anything needed to help with his insurance cover. If someone is reluctant to provide information, or simply wants to go down the easiest and cheapest route, there are very likely to be problems down the line. Insurance is there to help you in the event of a problem, and it makes no sense to cut corners on something so important. An owner has often spent many millions of dollars on purchasing his yacht. The last thing he wants is to find he can’t use it when he wants to or has a huge problem if it comes to a claim.
For more information contact Colin Dawson on firstname.lastname@example.org