Comment: Yacht insurance is a team effort

Anyone involved with owning a yacht in the past two years will be well aware that yacht insurance has become harder to obtain. When the full extent of yacht losses in recent years became apparent, various insurers pulled out of the sector while those remaining increased premiums and deductibles dramatically and sought to reduce cover afforded. Aside from the cover itself, significantly more information about the owner, crew and maintenance is now required. Unfortunately, this is something that many are reluctant to provide.

There is no escaping the changes in the yacht insurance market and these are set to continue for a while yet, until the sector becomes sustainable for insurers. No size of yacht has been immune to these changes. In fact, the larger the yacht the more significant the changes appear to have been. It is true to say that premiums have been cheap to the point of unrealistic for at least the past 20 years. Insurers have paid claims, often without question and, occasionally, when they could probably have rightly rejected a claim.

Of course, there are always exceptions, but on the whole it’s reasonable to say that owners have had a good time of it with their insurances in recent years. The difficulty with a changing market is that there are many who see no reason for the change and simply want the cheapest premiums available, believing that all covers are the same, no matter how detailed an explanation is given to them. Insurers have been hit so hard they have been left with little option other than to be hard-nosed with the terms they have been providing over the past two years, preferring to lose business rather than cave into pressure on price and cover.

One thing that is apparent is the more understanding owners have shown to the changes the easier it has been to discuss flexibility with insurers. Insurance is generally less than 10% of a yacht’s annual operating cost, sometimes as low as 2%. In reality this is a very small fraction of the annual costs of running a yacht. If owners want to have good quality cover that reacts in the way they expect in the event of a claim, they need to be prepared to pay a fair premium for it. It’s always possible to find a cheaper premium somewhere, but at what potential cost to the owner in the event of a problem?

“It is true to say that premiums have been cheap to the point of unrealistic for at least the past 20 years.”

So, how can the effect of these changes be lessened to an owner? Insurance is all about the transfer of risk. The greater the risk transferred to insurers, the tougher the terms of cover will be. As such, if an owner can prove good management, maintenance, operation and prudent use of a yacht he is likely to obtain cover that is more favourable than if he is just squeezing for the cheapest premium.

An owner that hops from one insurer to the next for the saving of a few dollars is likely to come unstuck if he needs to revert to one of his previous insurers for help in a hard market where cover is more difficult to come by.

It’s fair to say that many of the insurers pulling out of the market recently have been those quick to offer cheap premiums in order to win business. Loyalty to an insurer does pay dividends when help is needed or if their offering cover at all is borderline. An owner looking to work with his broker and insurer to present a risk that is as low as possible will get a better reception than one who is looking to cut corners.

The quality of crew is really very important. Well-trained, motivated and experienced crew who are valued by the owner will tend to look after the yacht better than crew who are treated badly. This will translate into a better experience for the owner and guests on board. A yacht with a low turnover of crew who are well trained and qualified tends to demonstrate good quality ownership and this is something attractive to insurers. In turn this will likely help when cover is being arranged.

The quality of insurance broker used cannot be overestimated. There are many who purport to offer yacht insurance, and they may do, but there are few who really understand yachts and risk management surrounding these assets. The money and stress saved by having a good quality broker can be significant, though they may be recommending a cover that is initially more expensive.

Working as a team to present the best risk possible to insurers, and have insurers know that you as an owner really understand risk and implement good risk management practices, will definitely help. Insurance provides the peace of mind that someone is there to help you in the event of a problem. It’s rare that cheap options provide that.

About the author

Colin Dawson has been in the marine insurance industry for more than 23 years, starting his career in the Lloyd’s insurance market. Specialising in yacht insurance, Colin built specialist divisions at two of Hong Kong’s insurance brokers before setting up his own business in 2009. Colin has had extensive experience in the Asia Pacific region and has arranged covers for every size and type of yacht in most geographic locations around the world.

Outside of insurance, he takes a keen interest in the yacht industry and is a founder member and chairman of the Asia Pacific Superyacht Association. He is also a keen sailor, taking part in some of the regional regattas and offshore races on larger yachts.