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Post Magazine - 3rd August 2006
Sail away, sail away...
With the number of boats in the UK’s waters increasing year on year, the insurance industry is having to rethink the way it writes its yacht and pleasure craft business. Sam Barrett discovers what it takes for boat-owners to hit the high seas.
Venturing to the Isle of Wight for Cowes Week shows first-hand the UK ’s love of messing around on the water. A busy sailing spot at the best of times, it attracts more than 8000 participants for eight days in August, a further 80,000 spectators and enough collisions and sinkings to raise the blood pressure of anyone involved in the yacht and pleasure craft insurance industry.
It is a love that is growing significantly too. Figures from the British Marine Federation’s European Overview 2004 report show that while there were 426,000 boats owned in 2001, this figure had increased by almost 12% to 477,000 by the end of 2003. To put this in context, that means there is currently one boat in the UK ’s waters for every 50 cars on its roads.
In addition, there are more than 103,000 member of the Royal Yachting Association, up from 273 in 1946, and some 185,000 people complete its training courses every year. The nation’s growing interest in sailing is good news for the insurance industry but it also brings several challenges.
“It’s a competitive market,” says Nigel Hawkes, operations manager at Haven Knox Johnston, “There are a lot of players involved in a relatively small marker.”
This competition pushed rates down through the 1990s, with insurers only able to come up for a gulp of profitable air in the last few years. However, with the number of boats in the UK ’s waters increasing, competition is not likely to abate and further European players are expected to enter the market in the next year.
As well as intense competition, the yacht and pleasure craft market faces many of the same challenges as other areas of insurance.
Richard Coleman, head of Navigators and General, explains: “Legal costs and labour costs are rising and there’s a real need for underwriting discipline.”
“We are seeing more people seeking insurance who have no sailing experience.” adds Mr Hawkes, “People used to work their way up gradually from the small dinghies to the larger boats but they’re now jumping straight into much bigger boats.”
Although technology on modern boats makes them relatively straightforward to sail, a basic understanding is essential to ensure safety is maintained if equipment fails.
Pat Lavin, yacht manager at Towergate Marine, explains: “A prudent underwriter will look at the calibre of the proposer and decline where there is insufficient experience. An inexperienced sailor is more likely to make a claim in their first year than in all the subsequent years they are on the water.”
Experienced Skipper
Some underwriters insist on formal qualifications, such as those offered by the RYA. Others require the boat owner to sail with an experienced skipper until they have sufficient experience themselves.
Another form of risk management comes through the boat survey. Unlike the annual MOT test required for motor vehicles, there are no formal tests to ensure a boat is seaworthy. Any survey requirements will usually be based on the insurer’s experience, the type of boat and the material it is made from, although it is the boat owner who picks up the tab for it.
“There are no rules and we see boats that aren’t surveyed until they’re 25 years old and then never again,” says Paul Newton, marine manager and underwriters at Holman’s. “If they were surveyed every three to five years, once they were 10 years old that would be sufficient.”
Repair costs are increasing too, especially as boats are being made of a wider range of materials. To help address this issue, Navigators and General has introduced a network of approved repairers throughout the UK .
Although this initiative has the potential to cut costs, Mr Coleman says it was introduced to provide a better service. “People’s expectations of service are based on their experience in other areas and having this network enables us to get capacity quicker, so boats are repaired faster,” he explains.
As well as being designed to ensure good service levels, this also has the potential to reduce claims costs as they can be closed quicker.
On a more positive note, claims do not tend to be that frequent. Although the UK ’s waters are becoming more crowded, other than at regattas and popular sailing spots such as the Solent , they allow boat owners plenty of opportunity to give one another a wide berth.
Theft is also only a minor issue in the boat market. Around 2000 boats are stolen each year, with a good number of these recovered. With the sailing community relatively tight-knit it is not easy to pass on a stolen boat, especially the larger and more unusual ones, but industry initiatives – such as the website www.stolenboats.org.uk - have also helped to reduce this risk.
Theft of equipment is more common though, especially as boats have become more hi-tech. For example, outboard motors account for more than a third of the thefts listed on the stolen boats website.
“Unfortunately, these are easy to steal,” says Mr Hawkes, but again, insurers are taking steps to stamp out this practice. “All outboard motors should be marked with a serial number, which makes it harder to pass on stolen ones,” he adds. “Additionally, we will only insure those that have serial numbers.”
Total losses can also occur as a result of fire or sinking, although these account for a smaller number of claims than theft.
Figures fluctuate but Peter Clark, managing director of C Claims Adjusters, estimates that over the course of a year anything from 250 to 500 fires occur, with a similar number of sinkings.
Sinking Losses
These types of claims can be particularly costly for insurers too. The materials used in boats tend to result in total losses where a fire or sinking has occurred but there are additional costs.
Mr Lavin says that where a boat has sunk you will also run into costs for environmental matters. “If a boat goes down with a tank of diesel, you’ll need to get a specialist in to deal with this. No one would have bothered to do that 20 years ago,” he explains.
Additionally, although the number of total loss claims remains relatively low, Mr Clark warns that fraud is becoming more of a problem for insurers, “I’ve seen a significant increase in fraud, which reflects the current economic situation where people have high levels of debt. It’s much easier to lose a boat than to sell it,” he explains, warning that insurers need to be particularly vigilant when assessing total loss claims.
Increased boat ownership has other implications that will affect insurers. Presently there is little regulation over the UK ’s waters. “Given the number of people that are now boating it makes sense to have some form of licence,” says Mr Clark.
He would also like to see a registration system introduced for boats, making it easier to identify them – for example, if they are involved in a collision or are being sailed dangerously. “I’m not in favour of ‘big brother’ measures but this would improve safety on the water, which will have a positive influence on claims,” he explains.
There have also been calls to make insurance compulsory. This is already the case in many European countries, including Germany , Spain and Greece .
Although making insurance compulsory would increase business levels further, Paul Miller, director of underwriting at Underwriting Risk Services, believes take-up is already fairly high, “About 20 years ago, 20% of boats were uninsured but with the introduction of compulsory liability cover on inland waterways, as well as increased awareness of the risk of a liability claim, most boat owners will take out some cover,” he says.
This view is corroborated by Ira Harris, partner in the yacht team of Hill Dickenson. Logic may suggest that non-insured boat owners would be the ones dragged through the courts but she says she rarely comes across them. “People want to insure,” she says. “Even at dinghy level they want to protect their boat.”
There are other pressures on boat owners to take out cover too. Most marinas insist on third party liability cover before boats can be moored and many harbourmasters will not allow boat owners to launch without cover.
Despite this growth in pressure to insure, there is some resistance when it comes to making it compulsory. For instance, the RYA is keen that the market remains self-regulated.
Sarah Bell, partner in marine and regulatory at Moore and Blatch Solicitors, does not believe new regulations are required. “There’s no evidence that we’re any more risky on the water than any of the European countries that are regulated,” she says.
However, others believe that heightened levels of regulation are inevitable at some stage. “There’s bound to be a European Union directive that will see us having to accept its rules rather than design ones that suits our own requirements,” warns Mr Newton.
With more people catching the sailing bug, there are plenty of opportunities for brokers that wish to dip a toe or two in the yacht and pleasure craft insurance water.
Rather than develop a business specialising in yachts, the growing appetite for boat-owning means it is likely that a broker’s existing client base will contain a few sailors, with some areas of the market fitting the yacht owning profile better than others.
Unsurprisingly, high net worth and commercial clients are most likely to have the spare cash to fund a life on the water but clients with specialist motor vehicles can also be worth targeting. “Brokers should be looking at tying in all of a client’s insurance requirements,” says Mr Lavin. “If they don’t it may leave a chink in their armour.”
Broker entry
Support appears to be readily available from underwriters to help brokers enter this market. “Technology is a great leveller on smaller accounts,” says Nicholas Hales, managing director of Underwriting Risk Services. “Websites allow you to ask questions so you can really benefit from the underwriters’ knowledge. Additionally, the documentation is completed by the underwriting agency so it can be an easy way into the market.”
The Internet is also proving important among brokers already active in the market. “We’re looking at broadening our marketing and using the Internet more as boat ownership becomes more popular,” explains Graham Coates, group operations director at Bishop Skinner Marine.
He believes that being able to buy online will be particularly important at the lower end of the market, “You get a lot of younger people buying small dinghies,” he says. “The values involved are only small and the owners are used to buying online. It’s also a more cost effective distribution channel for us.”
Nevertheless, some areas of the market remain highly specialist. This is certainly the case at the top end of the market. Celebrity yacht owners such as Roman Abramovich and Ivana Trump as well as owners of the mega-yachts generally deal through management companies and lawyers when it comes to insurance.
“It would be difficult to get into this end of the market,” says Mark Feltham, head of yachts at Cooper Gay. “There are only around 12 management companies, so you’d need to take on someone that’s already dealing with them to have any success.”
Mr Hales also has words of caution for anyone eyeing the top end of the market. “You run the risk of real exposure if you over-extend,” he warns.
“You might want to protect your client base but cover at this end of the market is more complex and you can be sure that the more sophisticated buyer will go after a broker if anything goes wrong with their insurance.”
