Underwriters at the helm

Jul 25, 2022 by Capt. Jeff Werner

New technology, hurricane losses and yacht insurer shutdowns are behind rising insurance costs and increased restrictions on cruising grounds.

Many yacht owners decide to buy a yacht to fulfill their wanderlust and desire for adventure. However romantic that notion may be, it is soon dampened by the risk-averse underwriters who control the yacht insurance market. When yacht owners shop around for insurance, they are faced with very high premiums and loss deductibles from underwriters who limit cruising grounds based on their risk assessment. In some cases, yacht insurance premiums have risen by at least 43 percent from 2021 to 2022.

Underwriters proscribe cruising grounds because of weather severity or a port of call’s political risks. They also require that owners and crew have certain levels of skill or experience for passage making in order to lower the high cost of insurance premiums.

How did we get here?

Veteran yacht insurance brokers and industry analysts agree that three factors have coalesced in the past few years to create a perfect storm for insurance underwriters and owners alike: technology, hurricanes, and loss of insurers.

Newer technology is driving up claim costs. Pod drives that allow for joystick control when docking can cause damage when they fail or are in the hands of inexperienced operators, which increases claims over that of traditional twin-screw vessels. With the proliferation of computer- controlled engines, navigation systems, entertainment systems, and communication systems, lightning strikes and power surges at the dock can generate claims starting at $50,000 worth of damage aboard a yacht.

Knowing what can be done to reduce risks aboard a yacht — such as hurricane plans, use of anti-theft devices, and hiring the most experienced crew available — will help to meet the risk management requirements.

Record hurricane activity in recent years has also meant record damage and losses to recreational vessels, and a loss of profits for insurers. Pantaenius, among others, no longer writes insurance policies along the Gulf of Mexico, in Florida, or in the Caribbean.

For many years, insurers such as Lloyds undercut pricing to gain market share and attract business. Their high-risk insurance riders for American-flagged yachts cruising Cuba were popular for many years. Lloyds was unprofitable because it collected premiums that were too low for the true risk that it was underwriting. The result today is that agents who insure yachts no longer have access to the Lloyds insurance market. In 2020 alone, at least 12 companies that write yacht insurance closed.

Insurance creep elsewhere in the yachting world

Every large marina now requires yacht owners to carry at least $500,000 in liability insurance. They also may request that the yacht owner add the marina as additional insured on the yacht’s insurance policy before they allow dockage for extended periods of time.

Royal Yachting Association training centers worldwide have experienced an increase in the number of superyacht crew taking Yachtmaster theory and practical courses. Driving this increase in students are insurance companies offering discounts on premiums paid by the yacht owner if entry-level deck crew, such as deckhands, obtain their RYA Yachtmaster Offshore Certificate of Competence. Deckhands typically don’t have the breadth of experience or the sea time necessary to be adequately prepared for the rigorous Yachtmaster program. This has necessitated RYA training centers to offer two-week “zero to hero” classes with failure rates as high as 50%, which has compromised the RYA’s well-established building block approach to its reputable training scheme.

What can a yacht owner do?

Be proactive. Work with a reputable and well-established yacht insurance broker. Discuss with them the factors that are driving up the costs of premiums for the coming year before the policy renewal notice is received. These conversations should also include the reality of limited insurance market choices and trends in underwriting requirements. Knowing what can be done to reduce risks aboard a yacht — such as hurricane plans, use of anti-theft devices, and hiring the most experienced crew available — will help to meet the risk management requirements of underwriters.

Circumnavigating the globe or cruising to find those last outposts of stunning untouched natural beauty and pristine anchorages may be difficult to do in the current underwriting climate, but they are doable with sufficient planning and budgets for the necessary yacht insurance.