Legal Hot Topic – Facing the Insurance Storm When it comes to buying, converting or building a superyacht or indeed any other high value asset insurance can sit along way down the priority list, quite often being taken care of at the eleventh hour as a mere procedural necessity.
Whilst it can be taken for granted, if something does go wrong, having comprehensive insurance cover with a reputable insurer can make a real difference. Therefore, like it or not – insurance is important as recent events demonstrate.
Until recently securing such insurance for superyachts through insurance brokers could be done quite quickly and owners were for the most part seeing insurance premiums falling year on year since the financial crisis. This in short was a result of too much insurance capacity in the market driving the premiums down. There have since been significant losses across the market, but particularly in the yacht sector with Hurricane Irma and Hurricane Maria in 2017, the two new build total losses caused by fire and the 2018 storms in the Mediterranean to name but a few.
Moreover, Crew claims are also on the increase. Falling income with higher claims is obviously unsustainable and we are now seeing a much needed correction in the market, known as a “hardening market”. The unfolding of these recent events resulting in the reduction of insurance capacity in the yacht market is well reported. But what are the practical implications that stakeholders in the industry need to be aware of?
The trends that we are already seeing are:
(i) increased premiums,
(ii) more onerous terms including higher excesses,
(iii) stricter navigational limits with limited cover for yachts staying in hurricane affected areas;
(iv) more selectivity about the yachts and risks that insurers are to cover.
For instance, because of perceived increased risks some insurers may not want to cover substantial refits at all, others might favour yachts with a regular crew over one with high crew turn over. Indeed, even the perceived reputation of certain flags and classifications societies may also be taken into account. As a result it is also taking more time to put insurance in place, particularly if the risk is very unusual or the asset is exceptionally high value. Therefore, if you leave insurance to the last minute you might not get cover in place in time. This could be a deal breaker for a sale and purchase or could cause significant delays if a yacht is going into a yard for refit. Therefore, if insurance is required it is worth starting the process at an early stage. To speed this process up one should have the documents in order to present the risk and be prepared to answer the insurer’s questions.
Furthermore, whilst the Insurance Act 2015 has limited the circumstances that an insurer might avoid a policy for breach of warranty or other terms, insurers may well be more stringent in enforcing policy terms, particularly in relation to claims. One would simply not want to fall foul of failing to give notification of a claim within time, inadvertently cruising outside of navigational limits without seeking an extension or failing to disclose a material circumstance which might affect the insurers’ decision to cover the risk. Any such failures could result in a claim being refused by the insurer with good reason.
These issues are not only affecting owners seeking to insure their yachts, but also the stakeholders in the industry such as yards, managers and technical experts. We have noticed that insurers are looking closely at their insureds’ business practices and their terms and conditions so as to ensure they are doing what they can to limit their liability to a reasonable level. Equally, yacht insurers may be less willing to waive their own rights of subrogation against yards for refit work.
Of course, insurance is a global market and there may be other insurers not familiar with the yacht market who will step in to fill some of the capacity which has been withdrawn. However, with lesser known entities you have to ask yourself about the reputation of the insurer, their understanding of the yacht market, how quickly claims will be paid and the prospect of enforcing a claim which will depend on where the insurance entity is. The old adage being, if it seems too good to be true it probably is. So, in conclusion, whilst the insurance market for yachts and high value assets is changing this should not cause insurmountable problems. Quite simply we all need to be a little bit more insurance savvy and not only put it up the priority list, but include it in any operational plans for the yacht to deal with at an early stage.
By Sarah Allan – Partner