Colin Dawson on troubled waters for insurance
Boat fires in Hong Kong have compounded a difficult time for both the yacht insurance market in Asia and owners, who need sound advice to navigate a complicated period for coverage, writes Colin Dawson.
The fire in the Aberdeen Typhoon Shelter in Hong Kong in the middle of 2021 came at a bad time for the city’s insurers and those who provide cover for yachts. Even with the changes in the yacht insurance market over the past two to three years, premiums and deductibles have only increased a relatively small amount while we have not seen anything put towards risk reduction. Losses have continued to increase, and the market now faces a very tough decision in how to move forward.
Of course, insurance is a pool of risk and it’s fully understood that premiums from the majority contribute to cover losses from the few. This is how the industry has survived for over 300 years. The problem at present is that premiums have been too low for too long and losses have been too great for too long.
Something needs to happen to put things right, otherwise we will see a situation where yacht owners simply can’t get insurance. It needs a concerted effort from both owners and the insurance industry to effect sensible changes that allow for an increase in the premium pool while at the same time reducing the number of losses occurring to insurers.
Many insurers are taking knee-jerk reactions by pulling out of the market or imposing steep premium and deductible increases, severely reducing cover available to owners. Unfortunately, some of these changes are based on perceived risk rather than actual risk and are being applied across the board to all owners, irrespective of the situation of their yacht. This is not likely to be helpful in creating a team approach to resolving the problem.
What may be even harder is that insurers are now beginning to crack down on illegal moorings and use of boats. This is likely to cause significant difficulties in a city where there’s a huge shortage of Marine Department-approved moorings and many feel they have no option but to use illegal moorings.
It’s a discussion I have had time and time again. If a yacht is breaking the law, insurers can walk away from the risk or a claim. It’s an owner’s responsibility to know they are acting within the law and the manager of the yacht also bears responsibility for this, being a professional advisor to the owner.
How much Professional Indemnity insurance cover do most managers in Hong Kong carry to (ultimately) protect their clients? Professional Indemnity insurance is a cover designed to protect a professional in the event he gives bad advice to the detriment of the client.
If, for example, a claim arises and the manager has been responsible for advising on a mooring that turns out to be illegal, resulting in insurers declining the claim, the owner is likely to turn to the manager for compensation. This is where the manager’s insurance cover comes into play. Of course, it would be far easier if the manager gave proper advice all the time, but mistakes do happen.
In the coming weeks and months, owners need to expect premium increases and that obtaining insurance will become harder. Underwriters need to understand that 19 out of 20 owners do not have claims and to increase their premium pool, they’re going to have to retain existing clients and attract new business in offering a high-quality product to owners who see it as a genuine tool to assist in the operation of their yacht.
At the same time, owners need to be prepared to offer an olive branch to insurers and make a significant effort to reduce the risks that lead to claims. This includes the use of a good-quality risk advisor, otherwise known as an insurance broker.
A good broker understands underwriters, risks attached to what they’re arranging insurance for and where losses stem from. The broker should therefore be capable of advising an owner how to obtain good-quality cover and with whom it should be placed. They should also be able to advise an owner on how best to minimise risks that lead to claims, down time for the yacht, along with personal and financial risk.
There are many who offer advice on insurance to an owner. However, how many of those are legally doing so, insured to do so and have the depth of insurance knowledge and relationships to recommend a cover that delivers as it should do in the event of a loss?
The yacht insurance market in Asia is about to change in a way that has not been seen in many years. It’s best for an owner to be able to handle these changes with a professional advisor, operating legally and who is experienced in giving sound advice.
Dawson is a specialist yacht insurance broker with Expat Marine. Based in Hong Kong since 1994, he looks after clients predominantly in Asia-Pacific and superyachts globally. A Founding Member of APSA (Asia Pacific Superyacht Association) and a Director of the San Fernando Race Foundation for underprivileged children in the Philippines, Dawson is also a passionate conservationist. In 2014, he set up The Elephant Foundation, which raises awareness through education of the plight of Africa’s iconic animals and the communities around them.
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