Photo: Ocean Sailing House
Insurance is a necessary evil. A broker offers an owner a product that they both hope will never be used. Many believe the likelihood of a claim is slim, so they see little point in spending money on insurance.
While claims are rare, they do happen and are complex and expensive, often leading to significant downtime for a yacht. These problems can be minimized by buying quality cover from a specialist broker.
Unplanned downtime is frustrating, especially for a charter yacht where it’s a costly headache not covered by standard insurance. It’s best for a yacht to be up and running quickly after an incident, and good crew and insurance help with this.
If there are arguments with insurance over a claim, the costs for this additional downtime will likely outweigh any difference in premium cost. It’s therefore extremely important that a policy responds in the way an owner expects it to. This means an owner must fully understand what cover they have and more importantly, what cover they don’t have.
When arranging yacht insurance, it’s crucial to look at the actual cover being given and who’s providing and advising on it. Experience shows that quality cover saves costs and headaches in the long run, so is much more important than the initial price paid for it, especially when it comes to claims settlements and risk-management discussions.
Photo: Ocean Sailing House
A cheaper offer will invariably result in less cover being given and much more difficult discussions during a claim and when a change or flexibility is required. Someone once mentioned to me the phrase: ‘There’s no more expensive insurance than a cheap insurance that does not pay a claim’. This is a very true statement.
People buy insurance to protect themselves (and others) in the event of an accident, so it’s vital to ensure that proper cover is in place. There’s little point paying any premium to an underwriter, however cheap it may sound, if the cover that owners think is in place is not actually there when it comes to needing it, or the insurer knows little about yachts.
A specialist broker will only use underwriters they’re sure provide comprehensive cover and have a full understanding of yachts. In many cases, these are sailors themselves and therefore appreciate the feelings of owners, which is extremely important, especially when it comes to appointing surveyors to handle claims for them.
It’s far easier to discuss technical aspects of a yacht with such people than those who look at yacht insurance as part of a general portfolio.
While premiums from specialist providers may be higher, owners can be confident that the cover is extensive, with no gaps. Often, owners are unaware that their cover with some poorer-quality insurers is restrictive, as they or the broker may not know what to look for to ensure full cover is in place.
Yacht insurance specialist Colin Dawson shares questions to ask when considering yacht insurance
QUESTIONS TO ASK
We believe there are gaps in cover in certain clauses. Below are areas to consider when insuring a yacht:
● How are the tenders and toys secured to the yacht and are they towed? Some insurers are strict on this.
● Are there any personal effects on board? Do you want these covered? Most covers allow for this, but sub limits are often low.
● If you have high-value items on board, such as art or wine, how are these insured? Some high-net-worth property insurance covers this, so why pay premium twice?
● Some clauses exclude cover for damage to motors, connections, and electrical equipment if caused by heavy weather.
● For smaller yachts, liability cover will not be in place if the boat is operated by a yacht broker, marina, yard operator, or employee. Some professional yacht brokers will refuse to handle yachts unless this aspect of insurance is fully catered for.
● How much liability cover are you getting? Is this sufficient in today’s environment? For superyachts and charter yachts, this is well catered for by buying separate protection and indemnity (P&I) insurance. However, for smaller yachts, where this is included within the Hull and Machinery programme, cover may be limited.
● Does the yacht have a boat from which water skiing or wakeboarding takes place? If so, you will likely need to extend cover.
● Within the Institute Yacht Clauses, unless amended, cover will not be in force if the yacht is at anchor off an exposed beach or shore; fire will not be covered unless the yacht has an automatic fire-extinguishing system in the galley; if you hit rocks, no cover will be in place for the propellers, struts, rudders, or shafts.
● Check your deductibles, as some cheaper insurers offer cover with very high hidden deductibles that will affect you in the event of a claim.
● We think it’s extremely important to ensure owners are aware of the difference between Agreed Value and Market Value. Unless specifically stated, a policy is likely to be on a Market Value basis. Agreed Value means the stated sum insured is what will be received in the event of a Total Loss. Market Value means that, although you’re paying a premium based on the stated value of your yacht, the sum received in the event of a loss may only be a market value, which could be considerably less.This may also apply to Partial Loss claims where deductions may be made considering a yacht’s age.
● Taking someone from your office or a client on your boat can be seen as corporate entertainment and might not be covered.
● Where and how is the boat moored? Many insurers are very particular about this.
Photo: Galeon Yachts
PREMIUM PROTECTION
Many owners shop around each year for cheaper premiums without understanding this may do more harm than good. The yacht insurance market is small and has contracted significantly in the past five years, with fewer insurers willing to offer cover, especially for yachts with wider cruising patterns.
If more than one broker is asked to offer quotes, the same insurers will likely be approached by different people. This does not help the owner’s cause when trying to negotiate a lower cost or expanded cover.
A good insurance broker should approach all reputable underwriters available for the type of risk involved and promote the best quality, value for money, and appropriate cover to an owner – not necessarily the cheapest one.
When it comes to renewals, it’s best to try to remain with the same insurer. A long-standing relationship helps in the event of a claim or when changes are needed. If the insurer is confident an owner is not going to continuously shop the market, he’s likely to be more flexible when needed.
While a cheaper premium may look attractive, compare the cost of insurance to the annual operating cost of a yacht. The globally accepted cost is between 10-15 per cent of the new delivery price of a yacht.
For example, a yacht with a delivered value of US$20 million that carries a premium of US$120,000 will have an annual operating cost between US$2 million and US$3 million. Insurance is about 4.5 per cent of this annual cost.
A premium costing US$100,000 as opposed to US$120,000 saves US$20,000 or 0.9 per cent of the owner’s annual operating cost.
But maybe now the saving doesn’t look so attractive, especially when the potential consequences are thought through.
With the above in mind, we believe any additional cost for quality cover from a specialist insurance broker and underwriter is money well spent when considering:
● The above points
● Their specialist knowledge of yachts
● Their specific approach to risk management
● The specialist nature of the underwriters used to insure the asset
● The quality of surveyor used when the need arises
● The very high levels of service given by a bespoke operation – think of the difference in how one is looked after by boutique hotels as opposed to a three-star hotel chain.
If there are any queries relating to the above or any other areas you wish to discuss, please do not hesitate to contact us.
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