VIEW FROM THE YACHT CLAIMS DESK BY GUY MATTHEWS
Yacht Insurance Underwriting
The "Big Gun" who supervises the Yacht Claims Desk recently asked the occupant thereof to prepare a crib sheet for fledgling yacht underwriters in the employ of a prominent insurer. The occupant, not known for an unwillingness to pontificate on virtually any subject, offered the following comments based on personal conclusions derived from handling losses which cross the Yacht Claims Desk.
The underwriting of yacht insurance policies is an art rather than a science and is one in which there are few absolutes and many exceptions to the rule. The successful underwriter, aware that desirable risks become unexpected total losses and that abysmal risks sometimes weather all storms undamaged, will soon develop a wariness about every vessel which is presented for coverage. This wariness, essential to good underwriting, must be balanced with a willingness to take risks lest no vessel would be found suitable for coverage.
The yacht insurance underwriter's goal is to identify those risks which are less likely to produce a claim or claims during the currency of the insurance policy. Two of the main tools used to identify and define potential risk are the Hull Survey and the Application For Insurance, each of which should be read in conjunction with the other. The wary underwriter recognizes that these documents are prepared by an assured person and a broker, whose interests are sometimes far removed from that of the insurer. These documents are critical to good underwriting not only for what is said therein but for what is left unsaid.
The survey is prepared by the yacht surveyor. In the US, most surveyors belong to either SAMS (Society of Accredited Marine Surveyors) or NAMS (National Association of Marine Surveyors); a comparable association in the UK is the Yacht Brokers, Designers and Surveyors Association (YBDSA). These organizations have the goals of ensuring that the members are competent and that surveyors' work is properly and professionally done. Notwithstanding a sometime wide difference in the competence of individual surveyors, most insurers accept surveys from anyone who is a member of one of the aforementioned organizations.
There are five types of surveys which relate to the vessel risk as listed below:
1) Hull survey - pre-purchase
2) Hull survey - insurance
3) Damage or field survey (after loss)
4) Rigging survey (generally prior to ocean voyage)
5) Engine/machinery survey (often in conjunction with vessel purchase)
The underwriter is mostly concerned with the two above-noted "Hull" surveys. A pre-purchase survey will likely include voluminous detail and nit-picking comments on the vessel and both essential and non-essential recommendations, many of which are of no interest to the underwriter. Unfortunately, the assured who presents the pre-purchase survey for insurance purposes might find himself in technical violation of some policies' survey compliance requirement for the failure to address a minor, non-critical recommendation.
The hull survey for insurance purposes should target those areas most of interest to the yacht underwriter. The most specific items of interest in this survey are (1) recommendations affecting the safety and seaworthiness of the vessel, (2) the new replacement cost and estimated current sound value of the vessel and (3) the surveyor's opinion as to the vessel suitability for her intended service. Unfortunately the surveying profession often takes a circuitous and verbose route to provide these rather simple facts. In the best of all possible worlds, the hull survey for insurance itself should adequately describe the vessel in no more than two pages of text with a separate listing of the significant recommendations. The recommendations should be crisp, concise and address a specific condition. For example:
Not the non-specific - "The operator should occasionally inspect the stuffing box and its fittings and repack it when leaking and renew the hose clamps when they get rusty."
But the specific - "Renew badly rusted hose clamp on port stuffing box and repack same."
The wary underwriter will be ever suspicious of lengthy survey reports which include a glossary, definitions of terms found in the report, multiple pages of disclaimers and verbiage seemingly lifted from a yacht broker's sales brochure. Inclusion of this information is reassuring to the surveyor's ego but serves no useful purpose and is time consuming for the reader. (The Claims Desk has long railed against the overly long survey report abounding in useless wadding to such an extent that the survey particulars and findings are detected only after a lengthy and time consuming search.)
Many brokers now encourage the assureds to sign a "Letter of Compliance With Survey Recommendations." This practice is geared to eliminate any seaworthiness question which might arise at time of loss and comply with the policy's requirement regarding survey recommendations. Unfortunately in many cases this practice has simply become another bureaucratic step in issuance of the policy with little relationship to the actual vessel status. (If a vessel has 50 recommendations and the assured has signed the compliance letter on the day after the survey was completed, the wary underwriter should suspect that the recommendations remain unaddressed.)
Attention to the new replacement cost versus current market value should give the insurer an idea of the likelihood of total loss in the event of an accident. The wider the spread between the replacement cost and current value makes a total loss more likely in the event of an accident.
The Application For Insurance is often a broker's creation and can be helpful in understanding the risk. The wary underwriter is concerned about the experience of the vessel operator, assured's occupation, waters to be navigated, ownership history, intended service of the insured vessel and the past loss history. (The Claims Desk believes that there can be no better indication of what can happen in the future than what has happened in the past.) While some of the applications are very comprehensive and informative, some brokers have created a minimal form which satisfies the policy's requirement for a signed application but is distinguished by its lack of useful information. Gleaning information from the application, the wary underwriter can detect clues as to the assured's competency to operate the vessel in its intended service.
There are certain truisms apparent to the occupant of the Yacht Claims Desk, many of which can incite violent arguments if restated in polite company. These certainties, experience-based rather than theoretical, are listed below in no particular order.
· Wood yachts are today generally poor insurance risks
· Fiberglass is the most practical construction material today for yachts less than 60 feet in length.
· Steel and aluminum yachts, while often better constructed, are more difficult and costly to repair due to the lack of skilled technicians and facilities.
· Lighting damage is one of the most commonly occurring losses in the tropics.
· Lightning diffusers and diverters have no provable effect on lightning strike occurrences.
· Notwithstanding their growing popularity, catamarans are more exposed to loss than monohulls. Experience indicates that the catamaran is more likely to sustain a lightning strike; the catamaran is more exposed to dismasting than other vessels; the beam of the catamaran makes secure mooring more difficult to obtain; catamarans present a significant capsizing risk. (Any vessel with an escape hatch in the hull bottom should be viewed with concern.); the stability of the catamaran makes it popular with those with less than extensive seagoing skills; ad infinitum
· Older boats are more exposed to rigging failures hence the need for periodic rigging surveys;
· Rigging surveys should be conducted before ocean passages
· Carbon fiber mast and hulls are extremely expensive and difficult to repair.
· Theft is a risk which can be managed by restrictive policy conditions.
· Dinghies and tenders should not be covered by insurance when under tow.
· Gasoline-powered boats are more dangerous than diesel-powered boats.
· Every vessel in tropical waters (mainland and islands) should have a real world-workable hurricane protection plan.
· Sails or yacht canvas items left in place in a named wind storm increase the likelihood of damage to the vessel and should not be subject to insurance coverage.
· Trimarans and vessels built of ferro-cement are generally very poor insurance risks.
· Speed is a factor in powerboat loss occurrences - the higher the speed the more likely an operating loss.
· The insuring of charter boats in competitive regattas should be undertaken with extreme care.
· Typical charter boat damage deposits do not adequately respond to the increased risk in regattas.
· Fixed-fee yacht deliveries create an increased potential for loss.
· Single-handed operation of yachts on ocean voyages increases the potential for loss.
· Charterers are no more likely to imperil the safety of a charter vessel than are members of the general boating public to imperil a private vessel.
· There is difference in loss exposure and reparability among vessels by various manufacturers.
· The yacht survey is generally inclined to reflect the view of the party paying for the survey.
· The most important factor: there is no substitute for competent and experienced seamanship.
There is no magic yacht underwriting bullet. No two yacht risks are the same and successful underwriting of each risk is a skill developed by experience.
Copyright© 2006 Compass Publishing