COLUMN Colin Dawson
A
s many yacht owners will have
experienced, the yacht insurance
market began a period of change
late in 2018, the effects of which
are being seen by all owners when renewing
and seeking to procure insurance cover.
In a two-part article, I look at the reasons
for this change, what can be expected in the
coming couple of years and what owners can
do to minimise some of the more dramatic
effects of these changes.
When I started to specialise in yacht
insurance in 1997, a typical insurance
premium for a newish yacht would be about
1.0-1.5% yearly while cruising, plus 1.5% on
the new replacement cost of the mast, spars,
sails and running rigging to include racing.
This came with a deductible of 1% with
cover on basic Institute Yacht Clauses,
Named Perils clauses dating from 1985.
There were few underwriting yachts and the
choices of cover and expertise were not wide
ranging, although a couple of insurers had
new ‘All Risks’ policy wordings.
Things began to change around the new
millennium as more insurers released their
own wordings, giving far wider levels of
cover while capacity poured into the yacht
insurance market, which gave a higher return
than the commercial shipping insurance
market.
Added to this, interest rates were falling,
meaning investors were looking for returns
from areas other than banks. Of course, this
encouraged competition and the race to the
bottom began.
Prices fell, cover widened and
underwriters opened their doors to as much
business as they could take. Furthermore,
insurance brokers and agents gave
commissions back to win business. With all
of this, clients were increasingly able to add
pressure to push down premiums.
The market entered a period – that would
run through to the end of 2017 – where all a
broker needed to do for a motor yacht risk was
to ask an insurer to release terms that another
broker had worked hard to negotiate, rebate
half of his commission and present these to an
owner’s secretary to win the account.
There was precious little thought given to
who the provider was or their knowledge and
experience. As long as the price was cheaper,
this often won the day, with potentially
disastrous consequences if something went
wrong.
The secretary had little time to reallyread and understand what the cover was. In
fairness, a complex insurance contract for
a multi-million-dollar asset really should
have been dealt with by someone qualified to
handle such legal agreements.
Clients also began giving their business
to friends who happened to do other types
of insurance and now wanted in on yachts,
whether they knew about yacht insurance or not.
Sailing yacht owners were different and
tended to handle their own insurances, no
matter the size of yacht, although like motor
yacht owners they were also happy to see
premiums fall.
The only sector that didn’t really see much
of a change in this period were cruising yachts
in the 50-80ft range that raced offshore. As
premiums dropped year after year, the claims
kept rolling in. The above is a generalisation,
but pretty much sums up the state of the
market for the 20 years leading to 2018.
By the end of 2018, premiums had sunk
to about 0.6% per annum for smaller yachts
and as low as 0.3% for much larger yachts.
Deductibles were in the region of 0.3-0.6% of
yacht values.
In 2017, there was a dreadful hurricane
season in the USA and major catastrophe
losses from all around the world including a
series of significant fires aboard superyachts
on a worryingly regular basis (averaging one
a month), added to regular claims such aslighting, ‘new’ rocks, racing losses, crew and
engine damages.
Lloyd’s began to worry and warnings were
sent out to insurers to do something about it.
At the end of 2017, we began to see a change.
Premiums were no longer automatically
reduced and there were even small increases
in premiums, something most in the yacht-
insurance market had never experienced before.
The 20-year price war was coming to
an end, but had it been a good thing for the
consumer? Probably not, to be honest. While
premiums were cheaper and the cover broader,
many of the brokers, agents, insurers and others
in the market were not specialists, leading to
difficulties with claims and confusion over the
actual cover that was provided.
Had the market operated in a more
sustainable manner, we would not be seeing
the steep changes we’re seeing. Owners now
finding they can’t get insurance would not be
in this position.
There would also have been enough
reserves in the market to allow insurers and
brokers to employ more specialists, leading to
greater choice and better-quality service from
their insurance providers.
In Yacht Style Issue 49, part two of this
article will focus on what to expect in the next
couple of years and what owners can do to
help minimise the effects of the more dramatic
changes.In the first of a two-part article on yacht insurance, Colin
Dawson looks at how the ‘price war’ of the past two decades has
left some owners exposed and others unable to secure cover.
OWNERS PAY THE PRICE
A keen sailor, Colin Dawson is a specialist yacht insurance broker
at Expat Marine and was a creator and Founding Member of
APSA. Based in Hong Kong since 1994, he looks after clients
predominantly in Hong Kong and the Asia-Pacific region
and with superyachts on a worldwide basis.
[email protected] / http://www.expathk.com/marineCOLIN DAWSON