Insurers Continue to Post Huge Yacht Insurance Losses
It’s no secret that the yacht market at Lloyds has posted enormous losses over the last couple of years. 2015, a relatively quiet year saw the Market shell out well in excess of £200m in superyacht-related claims against revenue estimated at £150m, posting a loss ratio of around 140%.
The following years have seen the Lloyds Yacht Market overall fare even worse. Although insurers have collected more premiums the amount they are paying out continues to increase and have seen them post combined loss ratios of over 175% and 150% in 2017 and 2018 respectively. Such losses are clearly unsustainable; consequently we have seen some syndicates at Lloyds withdraw from the Yacht Insurance Market altogether and others review their underwriting parameters. The casualties aren’t restricted to Lloyds either, with players in the London Market in general examining their positions in and, in some cases withdrawing from, the Marine Insurance Market altogether.
How have we arrived here?
It’s complicated; despite the growth of the Superyacht Market which increased demand for insurance, instead of premiums rising in line with demand they have fallen; in fact we estimate they have halved over the last 10 years.
This anomaly is probably due to an increase in market capacity – i.e. more insurers coming to drink from the well – and the need of underwriters to fill that capacity. So with more competition in the market place, insurers were obliged to drop their prices if they wanted to secure orders; in effect it wasn’t so much a price war as a race to the bottom; and this trend has flowed down from the superyacht segment to the rest of the yacht and pleasurecraft insurance market.
Then insurers started receiving claims; and they continue to do so. Losses through fire are not uncommon; extreme weather has become a significant contributor to losses.
What are the options for insurers?
Those insurers who remain in the Yacht Insurance Market have been left with some fairly basic choices: increase premium levels, impose higher excesses or deductibles and restrict underwriting appetite.
Most insurers have done at least one of these, some have opted for all 3.
If you are the owner of a classic yacht or boat you might well have been told by your insurer that they will not be offering you renewal terms this year; as you may have if you are the proud owner of a racing yacht.
Or you may have received renewal terms with a surprise double-digit percentage premium increase. Some providers are offering renewals with rate increases in excess of 30%; those who claim on their policies might view this philosophically; those who have never made a claim may not be quite as sanguine.
But the message is clear for yacht and boat owners: the soft market that has seen premiums fall over a 10-year period has ended; and even if insurers were to double their yacht premiums they would still not reach the level at which they were 10 years ago, so we are likely to see a sustained period of higher premiums for yacht and boat insurance.
There will always be some committed Flat-Earthers on any sphere, however, who refuse to believe. One veteran of the sector recently commented that price increases in the Marine Market would lead to a “loss of credibility”; which obliges one to ask how can an industry maintain credibility, if it hasn’t already been lost, in the face of sustained losses without increasing prices? A restructuring of underwriting parameters simply isn’t enough.
What are the options for owners?
For some owners simply finding cover could prove a mission in itself. Owners of classic yachts or historic vessels may find their insurers declining to make an offer of renewal. Owners of houseboats or racing yachts may find themselves in similar circumstances. In such cases, solutions could be sourced through a specialist yacht insurance broker with access to niche facilities; simply finding insurance for niche vessels such as these may become the driver for owners rather than finding the best price deal through trying to source multiple quotations that simply will not be available.
Although they may be experiencing premium increases, owners of what might be termed standard yacht cases, as well as narrowboats, Dutch barges and suchlike, with insured values under £150,000 may have better luck in sourcing multiple quotations if they are trying to chase down a lower premium. However, overall proposition value may become an increasing factor in this segment as premiums rise.
What “Extra” do you have in your insurance renewal?
So, other than a higher premium, what else did you get in your yacht insurance renewal that might add value to your insurance package? It is worth considering the basis of cover that your policy is providing – some insurers reserve the right to only “pay up to the sum insured” which means they can make an offer based on their valuation of your yacht. Other policies will provide cover on an “Agreed Value” basis which means in the event of a total loss of your yacht the insurers will pay you the agreed value of the vessel as stated in your schedule. Other policies will provide new for old cover on your yacht depending on its age. Perhaps it can be said that the true value of a yacht insurance policy is in the value on which it bases its cover.
Other cover benefits may be of more or less value depending on your viewpoint. Legal Expenses Insurance assists with uninsured loss recovery – such as recovering your policy excess from a third party in the event of a non-fault claim – may now have more value due to insurers imposing higher excesses (or deductibles) as they look to minimise their exposures to attritional claims. Most policies contain some cover for personal effects, contents, personal accident and the like and most will also have some form of “Marina Benefit”.
Policies for larger yachts may, or may not, have some genuine benefits that can really add value to your overall yacht insurance package. Machinery Breakdown cover could, for example, prove to be extremely valuable and is available on some policies for newer yachts with larger values. Cyber liability cover is another benefit available as an extension to some policies for larger yachts and would be beneficial in the event of your on-board guests having their personal data accessed and stolen through your on-board Wi-Fi.
How can IRCM help you?
IRCM are a specialist yacht and marine trade insurance broker; we are able to source insurance programmes for all yacht types for UK residents.
Not only can we access a wide range of open-market yacht insurance facilities, we also have our own in-house yacht insurance underwriters with access to exclusive yacht insurance rates, including programmes for classic yachts and historic vessels.
For further information about how we can help you find the cover you need for your yacht please telephone 01902 796 793 or email enquiries@marineinsurance-ircm.co.uk