Why ‘cherry picking’ is on the horizon for insurers
Superyacht incidents of fire, groundings and sinkings were a narrative of this northern hemisphere summer causing speculation that insurance premiums will skyrocket next year.
A record 12 superyachts have been reported as destroyed so far this year with the fatal tragedy of the Bayesian likely to cost insurers up to $150m (€139m), according to reports.
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Extreme weather events linked to global warming, hurricanes, overcrowding in safe harbours, lithium battery issues, inadequate crew training, a growing fleet and ageing vessels have all been suggested as causes or contributors, with publicity heightened around these events because of social media saturation.
But while premiums may go up in some instances, insurers are more likely to look at adding in extra clauses, increasing deductibles or possibly becoming more selective in what business they write, according to Michelle van der Merwe, superyacht account manager with Pantaenius.
“I think it’s important not just to talk about premium increases and talk about the whole picture,” says the Monaco-based Van der Merwe.
“There could be increases, there could be insurers pulling out, there could be insurers cherry picking what they want to write. And there will be insurers adding in extra clauses in their wordings about manning, crew, batteries, in respect of everything that’s been happening.” The aim of the additional clauses is to promote safety, which has to be seen as a “positive step”, she notes.
Cumulative effect
While the Bayesian tragedy, with the loss of seven lives, was the major headline of the summer, it needs to be put into perspective in terms of the marine insurance market, says Mike Wimbridge, global superyacht lead and MD, Pantaenius UK.
“We should remember that the yacht market falls within the wider marine space in terms of insurance,” he says.
“The Bayesian was a big headline, and I’m not in any way belittling the tragedy, but in terms of the total numbers, on the hull side, it is likely to be a modest claim. The potential attributable other losses include salvage and liability which may be much higher in terms of quantum.
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“But you have to also think about other events such as Baltimore Bridge, which is massive and is a loss that will fall in to the marine market numbers. It is also worth noting that there have been a number of war incidents and many of them will fall within the war marine book.”
Wimbridge also references the increased cost for cruise ships and other commercial operators now having to sail around the Horn of Africa rather than going through the Red Sea because of instability in the region, as well as major hurricane losses in Florida recently.
“It’s that cumulative effect of what’s happening,” he adds.
Disinclination
Wimbridge points to the 2018 readjustment in the London market when premiums rose sharply because of a “perfect storm” between low rates and big losses at the time. “There was huge disinclination for insurance company MDs to write a yacht book,” he says, having worked at Lloyd’s at the time.
“In reality, the major yacht losses amount to relatively small numbers when compared to something like a pipeline blowing up, but suddenly, that disinclination to write yacht business may be starting to come back.”
Pantaenius has received more enquiries about beefing up accident and death cover for guests and crew, including captain liability, in the aftermath of the Bayesian sinking, but Wimbridge adds: “It’s difficult to say hand on heart that everyone’s going to start to put rates up. We’re hearing that some are. It’ll depend on their reinsurance renewals and many other factors, but it is certainly not going to be getting any easier.”
Van der Merwe added: “They’ll have a book of business and they’ll look at it and think, right, we’re going to stop writing the super sailing yachts or stop insuring yachts in the Caribbean or possibly change their minimum/maximum yacht values.”
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At the very least, Wimbridge says, insurers will be looking for very clear presentations with precise plans for everything from hurricanes to manning to towing to alternative fuel systems and battery management.
“One of the consistent messages you’ll hear is that the clearer the picture that clients can give to underwriters, it just makes life go more smoothly,” he says. “If that presentation is not at the level you would expect, the answer might just be no. I think that is potentially where underwriters might be now, because they will have a certain income or capacity capability, and they know they can fill it with pretty good quality risks. So maybe some of these edgy ones might struggle a bit more. They’re just going to be more choosey.”
Pretty good risk
Different segments of the market are likely to be affected in different ways, with the biggest yachts potentially more immune to any upheaval from insurers.
“Everyone talks about the really big yachts and the owners being recession proof and I think that probably applies as far as the insurance is concerned – those really big boats tend to perform quite well,” says Wimbridge. “They have comparatively high deductibles, they are fully classed, fully maintained, fully manned and they are a pretty good risk.
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“It’s that section below, the smaller superyachts, where there have been problems with maybe crew not being of sufficient quality, or maybe that some of the repair schedules are being squeezed a little bit, where it might get slightly more difficult. To see so many groundings, with the progress in electronic charts and warning systems, shows to me we’ve got a bit of a problem there with captains and crew at that sort of level.”
Van der Merwe added: “It’s getting much harder to get insurance for a smaller expensive yacht – 18m but could be worth €7-8m – without having professional crew on board all the time.”
Red Sea
Areas of usage are another piece in the puzzle for potential insurers.
“Those smaller superyachts are still very much insurable, but if you are going to, for example, leave a yacht in Florida unmanned for July, you’re likely to really struggle,” adds Wimbridge. “If you’ve got a Med-based motor yacht with a professional captain which is used privately, you’re going to be fine.”
The increasing trend for superyachts to travel to more remote destinations such as Greenland, Svalbard, the Arctic Circle and the Pacific Ocean also brings with it an additional insurance burden.
Yachts wanting to visit the Red Sea, for example, may find premiums hiked or a lack of availability because of the risks of instability and piracy in the region.
“We’re seeing people wanting to visit the northern Red Sea, but compared with last year, we’ve had no one going to Dubai or even to the Indian Ocean yet,” says Van der Merwe. “They’ve asked about it but when they see the premium or the difficulties they’re going to have to get there, they reconsider their plans.”
Taking Greenland as an example, Wimbridge says there is “nothing particularly outrageous” with it as a destination but says insurers will expect a full plan, including licences and proof of conversations with pilots and other measures to mitigate risk.
“The more vanilla risks are going to be more appealing to an insurer than perhaps the more interesting yachts and cruising areas that underwriters were willing to look at over recent years,” he adds.
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