By Branden Helton, American ModernInsurance Group

Yachts make up just a small percentage of the overall boatmarket, but carry larger-than-average premiums that make them alucrative market for agents and brokers who understand the marketand know how to write this business. Higher premiums also give youan opportunity to focus on customer service and position yourselfas a trusted expert in this exclusive niche.

Generally defined as recreational sailing and powerboats rangingin length from 33 feet to hundreds of feet, yachts may come withmultimillion-dollar price tags for “mega yachts” or “super yachts.”Most, however, run from several hundred thousand dollars to about a$1 million and are found in large bodies of water, from the WestCoast to the Gulf, Great Lakes and hurricane-prone East.

Sales trends generally follow the overall boat market, whichstill lags pre-recession numbers. In 2012, boat sales recorded a 10percent increase, the first significant jump since the recession,according to the National MarineManufacturers Association (NMMA). In 2013, the NMMA forecastsanother 5 to 10 percent increase. There may be an additional bumpin sales on the East Coast as owners seek to replace some of theestimated 65,000 boats destroyed by Superstorm Sandy.

Read related: “4Sandy Lessons.”

Insurance coverage for yachts (some cabin cruisers andhouseboats fall under similar policies) is standard in some ways:they are best protected by an agreed value policy with physicaldamage protection for the hull, comprehensive coverage for otherkinds of damage or loss, and liability coverage. Yet there aresignificant differences in yacht policies that need to be addressedto fully protect your customer and their investment.

Here are four things to consider when placing yachtcoverage:

1. Consequential Damage

The first coverage to consider is consequential damage. Thisapplies when a yacht is disabled by engine failure and suffersresulting hull damage. Although hull damage is covered in mostpolicies as a result of a storm or other event, it may not be whenit is a “consequence” of mechanical failure. That makes itimportant to ask for consequential damage coverage.

With this coverage, the initial cause of the damage, includingany type of mechanical failure, does not void the coverage. This isa must for your clients with older yachts like much of the 15- to20-year-old inventory on the West Coast right now. Even on the EastCoast, where inventory turns over faster due to windstorms,pre-owned sales still dominate the market.

2. PartsDepreciation

For many of these older boats, yacht owners experiencing a lossoften deal with depreciation in the value of parts. That is, theparts lose value as the boat ages, and most insurers will coveronly the depreciated value of the part and not the full cost ofreplacing it. Different parts depreciate in value at differentrates, and insurers also vary in how they factor depreciation for apart.

For customers, this means costs can fluctuate greatly in theevent of a loss. One solution is an endorsement that waivesdepreciation for a specific period of time, up to about 10 yearsold. This means your customers will have lower out-of-pocketexpenses at the time of a loss.

3. NavigationZone Restrictions

Many yacht insurance policies are written based on navigationzones. These geographic areas may be as narrow as the Florida Keys,with premiums partially driven by the area's rating. That means aboater who insures his yacht in California's Bay Area may not becovered for damage that occurs in Mexico's Pacific Coast.

However, there are policies available that define navigationzones much more broadly. The policy would cover an area such as theentire coastal U.S., or all waterways in the U.S. and Canada. Someinsurers offer optional navigation endorsements to destinationssuch as the Bahamas.

4. AdequateLimits

Yachts are a decidedly big-ticket item and often loaded withexpensive equipment. That makes it particularly important to lookfor adequate limits and specialty coverages when writing yachtcoverage:

• Up to $10,000 in coverage for personal effects and fishinggear
• Up to $2,500 to reimburse emergency assistance and towing, andup to $10,000 for search and rescue
• Up to $1,000 per day ($10,000 per term maximum), plus lodgingand transportation.

Additionally, recommend coverage for accidents when the otherboat has little or no insurance, and also liability protection thatextends to use or rental of another boat. Coverage should meet therequirements of the Longshore and Harbor Workers' Compensation Act,as well.

Read related: “Knowthe Ropes on Boat Insurance.”

A boat owner's experience always matters for their insurancepolicy, but this is especially true when you're writing a policyfor someone with a million-dollar yacht. Know your client, theirboat and where they travel.

Also focus on writing with a top-rated carrier. With a luxuryitem such as a yacht, claims can be large, so the carrier's balancesheet is important.

Whether you're taking advantage of new yacht sales or theinventory of older vessels filling West Coast waters, by choosinghighly rated carriers, safe customers and policies with thecoverage they need, you'll be well positioned to prosper in thislucrative niche.