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Dark clouds on the insurance horizon?

Monday, 29 July 2019

Dark clouds on the insurance horizon?

INSURANCE is never going to be a topic that enthrals or delights its reading audience. 

However, there may be a certain amount of concentration of the mind when increases in insurance premiums along with restrictions in cover start to hit boat owners. The global yacht and boat insurance sector is undergoing a huge period of change not experienced in decades. In Australia the effects are being seen most in the cruising sectors. Local premiums are also seeing a trend upwards and cover is being restricted in certain areas while larger vessels in the superyacht sector are being heavily targeted and finding little or no options for insurance.

WHY HAVE PREMIUMS INCREASED SO MUCH?

In March 2017 Cyclone Debbie hit the Queensland coast, five months later Category five Hurricane Irma struck the Caribbean. Both these events, plus other high impact claims, led to an eye-watering US$2.6 billion of losses to the Lloyd’s insurance market. The huge losses attracted the attention of the actuaries, the ‘number-crunchers’. It highlighted that many years of stagnant or falling premiums and rising costs of repairs had led to making the yacht account an unprofitable one for underwriters. As a result a large proportion of underwriters ceased underwriting yachts. This leads us to the present where there are only a handful of underwriters actually writing yacht business. The laws of supply and demand means that, with those who are left, there is less competition and they may adjust the premiums upwards; especially for those boats that may be a higher exposure and cruising more remote locations or offshore.

HOW DOES IT AFFECT ME?

Unfortunately, Lloyd’s underwriters can have a global reach and effect. Companies that insure boats here in Australia may have a certain degree of protection from sudden increases, but they will see the effect of the global increases in premium and will be following the trend. Moreover, there is something called reinsurance, this is where an underwriter (including insurance companies) buy insurance to protect them should they have a lot of losses on their own book of business. The cost of such reinsurance has become very expensive and this is passed on to the consumer in the form of increased premium. Insurance is a cyclical business and, over the next year, there will continue to be adjustments and change. As premiums rise, sustainability will return and along with it competition between the boat insurance providers. New underwriters may look at the opportunity of insuring boats and come in to the market prompting greater capacity and competition. These events will see prices stabilise to the benefit once again to the consumer.

HOW DOES THE FUTURE LOOK?

Despite all the above doom and gloom, boat insurance, especially in comparison to other insurances, still remains good value for money. Insurers, as an industry, sympathise that they are protecting one of your greatest and most cherished assets, something that you have worked hard to achieve and maybe paying a little extra is worth that.

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