The global yacht insurance market is still in turmoil after an extended period of low premiums and wide cover led to huge losses to insurers and the departure of many providers from the market. It reached a stage when it was clear that rates were unsustainable and in the last two years, yacht insurance premiums have risen sharply as the industry attempts to rebalance the books.
Between 2008 and 2018, far more was paid out in yacht insurance claims than was taken in premiums. It was a period in which insurance companies were hungry for business, driving premium prices down and encouraging customers to buy yacht insurance based on price.
At the same time attrition claims and larger losses were also impacting the market. Climate change has become significant in terms of the timings, frequency and geographical spread of damaging weather events. Hurricane Irma in 2018, a succession of storms in European waters and a significant increase in the number of yacht fires have all been critical.
In fact, during the three years to the end of 2017 claims exceeded premiums by between 180 and 300% in the Lloyds yacht insurance sector. These losses have drained the marine insurance premium pool from which all claims are paid, so the market has seen capacity shrinking and cover being reduced over the last two years, increasingly so in 2021.
While the extent varies with size and category of yacht, the general scale of the increases is somewhere between 25% and 60%. Larger yachts have seen the highest increases but there have been increases across the sector. The risk appetite has also changed; the yacht insurance market is more cumbersome, and it is much more challenging to obtain cover for certain risks.
These are some of the factors that we have identified that will play an important part in the decision to provide insurance cover:
- Yacht age – A full ‘Out of Water Survey’ report and valuation is required by most underwriters if the vessel to be insured is more than 10-years-old. In respect of wooden construction vessels, a survey will probably be required when the craft is over five years, depending on underwriters’ criteria.
- Cruising regions – Tightened yacht entry regulations designed to stop the spread of the Covid pandemic have played havoc with yacht owners and insurers. Other regions can be particularly difficult, such as hurricane season risk in the Caribbean and war and piracy risk in places like the Middle East.
- Yacht value – Yacht owners may find it more difficult to obtain cover below €1 million, but some underwriters have elected to reduce their appetite for big risks and focus on smaller vessels.
- Ultimate Beneficial Ownership (UBO), nationality and country of residence – Restrictions may apply outside Europe. While the nationality of a UBO is not generally a big issue for underwriters, their residency, and the port of registration of the vessel will determine the ‘nationality’ of the risk and hence whether underwriters are licensed to insure that risk. UBO details have also become more significant because most underwriters/brokers will require the name, address, nationality and date of birth of each assured, whether a company or individual, for due diligence and sanctions screening purposes.
- Yacht holding company jurisdiction and flag – There are generally no issues under British or EU jurisdictions
- Crew qualifications and licensing – This is a key requirement, especially when the vessel is to be owner-operated. Underwriters will need to assess the experience and qualification of the captain and crew to operate any particular type of vessel, as well as licences held.
Clauses covering cruising regions, machinery, personal effects and leaving a yacht at anchor should always be carefully scrutinised. Most yacht insurance policies from established marine providers are ‘all risk’ policies with ‘third party’ cover, but where policies differ the most is in terms of the exclusions. In other words, you need to pay very close attention to what is not covered or what is only covered at extra cost.
Maintenance is also key because there are responsibilities on both sides of a yacht insurance contract. The insurer has a responsibility to settle all genuine claims in a timely manner and the owner has a responsibility to maintain the yacht insured in a seaworthy fashion. There is now a great deal more scrutiny of claims where the cause can be attributed to lack of maintenance.
The nature, depth and relevance of the cover is the key to securing proper protection for your yacht. The price will largely be defined by that. It is also essential that yacht owners should be completely honest and explicit at the policy writing stage or they may find that they have invalidated their policy.
Sovereign Marine works with Sovereign Insurance Services, an authorised insurance intermediary. As with other forms of insurance, the main way to reduce your premium is to reduce the agreed value (which should reflect the current market value in all instances), increase the excess – or to shop around for a better insurance deal. But price flexibility is now constrained by the resumption of sustainable rating systems, which means the bargains of the past may well simply no longer be available.
Managing Director of Sovereign Insurance Services Neil Entwistle said: “The main difference between insurers will often not be in terms of price or coverage, but in the way they go about servicing a claim – the level of service, communication, accessibility and responsiveness. Yacht owners can access better quality insurance programmes through knowledgeable, experienced insurance brokers like Sovereign Insurance Services that, while costing more, will offer them the level of service that they want and need.”