Mega-Yacht Owners Face Surging Insurance Costs It may not be enough to turn them into poor little rich guys, but the owners of mega-yachts are seeing a wave of increases for their boat insurance, marketplace professionals report.
"Weve seen dramatically more price increases on the larger yachts than we have on the small boat range," said Christopher Pesce, general manager at the Maritime General Agency in Westbrook, Conn.
Mr. Pesce, whose firm is the exclusive program administrator for American International Groups New Hampshire Insurance Co. yacht program, said for mega-yachts that sell for $2 million or more, "youre seeing price increases of 10-to-50 percent."
Others in the boat and yacht insurance segment said, for the most part, prices have gone up for all boaters, as some carriers have retreated from the marketplace and reinsurers have raised their rates. Geographically, Florida and other Southern locales are the most difficult regions to find coverage in, they said.
Deborah OSullivan, Chubb Group worldwide yacht underwriting manager based in Warren N.J., said the mega-class boats have been a "seriously underpriced" book of business. Now, she said, a 150-to-160 foot, $20 million boat would typically see a 40 percent increase. A years policy covering a $20 million hull and $10 million in liability could see from $20,000 to $25,000 in written premium.
That cost might appear paltry for someone with the wherewithal to buy such a high-priced boat, but Ms. OSullivan said the wealthy owners will fight over a $500 increase. They didnt get rich by giving their money away, she noted.
Roy Kraus, national yacht manager at Atlantic Mutual Insurance Company in Madison, N.J., said for luxury yachts, "it is not unusual to see increases of 20 percent on renewal, and with some of my London [market] brethren, its 50 percent." He said he believes his firm is the largest American insurer for luxury class boats.
"I have never seen a market this volatile in close to 38 years of yacht underwriting," Mr. Kraus reported. He said it had begun hardening prior to the 9/11 attack and "the driving force now is the reinsurers."
Last year, he said, reinsurance increases ranged from 20-to-60 percent for treaty and facultative insurance. "Were assured, for this year, were going to see more," Mr. Kraus said. His "guesstimate" is that reinsurers will seek further hikes of 15-to-30 percent.
Mr. Pesce said that as reinsurance capacity gets tighter and tighter, the situation is having a particular impact on yacht coverage in Florida–because primary insurers, in order to get reinsurance, "have to show less exposure to high wind states."
Prices in such areas are higher, and with mega-yachts, it may involve a facultative reinsurance arrangement, he said.
Ms. OSullivan said that premium rates in Florida are three times those in the Northeast, where there is less hurricane activity and boaters generally use their craft less than 12 months a year.
For insurers, the exposure in states like Florida is seen as so problematic that many are not writing yacht insurance. Among those who work in the boat insurance market, some have taken to joking "that the state will have to come up with a Wind Pool for yachts," Ms. OSullivan said.
Mr. Kraus said, in some cases, insurers ask that owners, in addition to accepting a deductible percentage of value for hull damage, take a three-to-five percent windstorm deductible as well.
At Travelers in Hartford, Conn., Chantal Cyr, director of boat and yacht insurance, said that instead of seeking a windstorm deductible, the insurer asks owners to submit a written windstorm plan telling "what they will do with the vessel if theres a storm."
The plan requirement is for boats 30 feet in length or longer, berthed anywhere on the coast from North Carolina to Texas, she said.
Christopher Smithwick, a principal in the Smithwick & Clarke agency in Portland, Maine, which pulls in premiums of more than $500 million a year insuring boats in the $100,000-to-$700,000 range, said he hasnt seen rates go up that much. "Prices are flat to maybe up 10 percent," he said.
But he agrees that getting coverage is tough in Southern climes. "For [those in] the blue-water class that go down to the Caribbean, its increasingly difficult to place and almost impossible to place with an admitted U.S. carrier," he said.
Comparing prices on a location basis, Mr. Smithwick said a $100,000 sailing yacht with a good owner might pay $2,000 in Florida for a policy that would cost him $700 in New England.
Mr. Smithwick said he has noticed lately that underwriters are paying much greater attention to the specifics of individual boats and taking a harder look at vessel condition surveys on older craft.
Mr. Smithwick said, in some cases, a boat may be located too far north. He said his firm had been insuring a 50-foot sailboat in excellent condition that was located in Greenland. When it came time to renew, the underwriter said it could no longer offer terms. "Coverage would have expired if he had not brought the vessel back to the coastal United States. If he left it in Greenland, we would not have had a facility for him."
Generally, Mr. Smithwick said for his Maine area, among the more than a half-dozen companies that he writes with, "there is a strong appetite among the carriers."
Mr. Kraus is unequivocal that there is a hardening market and that it will persist at least a short time in the future. "I see this hardening cycle as continuing through 2003 driven by the needs of reinsurers to recoup losses from 9/11."
However, he predicted, "Youll see some waffling as early as the first or second quarter of 2004." Naturally, much will depend on how the economy fares in general, he noted.
Elsewhere in the yacht market future, there will no doubt be increased used of technology.
At Travelers, Edward Charlebois, vice president of personal lines, said his company has made it easier for agents to do watercraft business with an Internet-based tool.
The company offers agents a Web site via its agency portal that provides boat and yacht insurance quotes. Its informal name for this is Atlas3 Boat Quote And Upload. Agents can print a quote letter or completed application directly from the site, or upload a completed application directly to Travelers.
He said that the company is currently testing out an Internet batch download system for boat and yacht agents, which populates agency management systems with policy information electronically overnight. With this process in place, agents do not have to manually input once the policy is received.
Reproduced from National Underwriter Edition, March 3, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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