Risky Business

Risky Business

Planning an offshore passage or extended cruise? You might want to check with your insurance agent first.

By Mike Smith — July 2004


Illustration: Charlie Hill
 More of this Feature

• Part 1: Offshore Insurance
• Part 2: Offshore Insurance
• Don’t Forget Crew Liability

 Related Resources
• Feature Index

We all know yachts are expensive—to buy, to maintain, and to repair. So it’s little wonder that sensible folks with big investments in their boats protect themselves with insurance to cover the cost of accident, liability, or total loss. But there’s been a lot of talk lately in certain yachting circles that some big insurance underwriters, unhappy with yachting’s risk-versus-return equation, might leave the game and cast owners into a sea of potential loss without a monetary life belt. Is this rumor true? Will insurance for your boat soon be too expensive—or maybe even unavailable?

For the benefit of those readers who don’t like to read, have excitable natures, or are within range of implements of self-destruction, I’ll skip to the bottom line: Stop worrying—but be ready to spend more money. Insurance for powerboats—and most sailboats, for that matter—isn’t exactly in crisis, but premiums do cost more than last year and will likely cost even more next year. That goes for cruising motoryachts as well as smaller craft that stick close to the coast. Yes, some of the major players in the yacht-insurance game have gone away—Royal SunAlliance, for one—and others have raised the minimum value of yachts they’ll cover (Chubb’s entry level is $1 million, according to one broker I consulted). Still others, e.g., Zurich, are shying away from high-risk areas like Florida and the Caribbean, where a single hurricane whacking into densely packed marinas can cause millions of dollars’ worth of claims. Fewer players means those who remain will be able to charge more; add the dubious returns from Wall Street over the past few years (investments are the prime producer of underwriters’ incomes), and you don’t have to be Alan Greenspan to see why insurance companies are charging more for coverage.

But you can still buy insurance. I spoke with several brokers in different parts of the country, and none reported problems obtaining affordable coverage for well-found motoryachts with experienced owners and/or crews. Sure, there’s always the guy with three or four recent claims who’s refused new coverage, but 99.9 percent of powerboat owners who want insurance can find it without much trouble. If there is an insurance crisis, it primarily affects older cruising boats whose owners want to make long passages with minimal crews, often with minimal offshore experience. Boats left unattended for long periods of time are also considered high risks. Oh, and should you tow your tender while cruising, it might not be covered.

But if you think insurance premiums are high today, you should’ve seen them in 1984, according to Spencer Lloyd, a top broker with C. A. Hansen Marine Insurance in Fort Lauderdale. “The industry is cyclical,” he says. “Rates change. Premiums were actually higher 20 years ago per $1,000 of coverage—but boats are worth a lot more today.” Lloyd also points out that marine insurance now covers lots of things that underwriters didn’t have to worry about in the past, like oil-spill coverage. “You can have $75,000 of damage to electronics from a single lightning strike,” he says. Megayacht owners often decorate their saloons and staterooms with valuable art, too, and even the tender for a major yacht can cost $100,000, meaning many insurers place restrictions on towing. “Tender losses mount up. Some companies simply say, ‘No towing underway,’” he adds.

The majority of boaters spend most of their time near their home port, but might occasionally take a longer cruise that takes them outside their insurance policy’s coverage area. This is where the so-called insurance crisis rears its head. But getting an endorsement for an ocean crossing or cruise to the Caribbean isn’t really all that difficult, in Lloyd’s opinion. “The key element is the condition of the vessel and the experience of the crew,” he explains. There will usually be an additional premium, and the insurer might require a survey and want the captain to have at least two years’ experience on yachts of similar type and have made a similar trip before. Aboard larger yachts, other crew members might have to meet requirements as well, plus the insurer may specify a minimum number of crew. “And the underwriter will want to know what you’re doing during hurricane season,” adds Lloyd.

Next page > Part 2: “It has to do with individual risk. Obtaining insurance depends on the past experience of the boat owner.” > Page 1, 2, 3

This article originally appeared in the June 2004 issue of Power & Motoryacht magazine.

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