on 2 Nov 2021
The yacht insurance market has been shaken by recent losses in Hong Kong. But that could be the springboard for positive change in the way yacht insurance is handled
Hong Kong has recently been hit by a series of yacht losses that has shaken an already jittery segment of the insurance industry.
A 17-metre yacht caught fire on October 18 in Aberdeen South Typhoon Shelter, while on June 27, a fire engulfed over 40 yachts in the same typhoon shelter, destroying 23. Hong Kong is already lacking in moorings and berth spaces, a problem discussed by the yacht industry for over a decade. The recent surge in demand for yachts in Hong Kong has left even more yachts tightly crammed together, increasing the risk of fire.
While it got plenty of attention, the fire in Aberdeen was just the latest and worst such incident. Six yachts were destroyed in the Clearwater Bay Marina fire in May 2018 and three were lost last year in the Kwun Tong Typhoon Shelter. These losses were compounded by other sinkings and groundings in Hong Kong, as well as the usual slew of claims.
The insurance industry will certainly react, even though 19 out of 20 yacht owners are unlikely to have a claim. The global yacht insurance market is still reeling from 20 years of low premiums and wide cover, resulting in huge losses to insurers and subsequent about turns in insurance cover.
These recent losses have decimated the marine insurance premium pool (commercial as well as yachts), from which all claims are paid. The Hong Kong insurance market has seen capacity shrinking and cover being reduced over the last two years, increasingly so in 2021. As a result, all owners will be hit by knee-jerk reactions from the industry.
The insurance industry can react in a positive way by helping owners reduce the chances of a loss and not simply hiking premiums and reducing coverage. To help move the market back into profit three main things need to happen: increase the pool of premium in the market; reduce losses to the yacht insurance market; and underwriters focusing on actual risks rather than working on a “tick box” list.
To achieve this, yacht owners that currently self-insure (aside from the legally required liability cover) must be attracted to buy insurance, and it will only happen if the insurance industry offers enough value to persuade sceptics and assists in the management of a yacht rather than just reacting to an accident. This will work in the favour of more experienced / specialist providers of insurance (and therefore in turn owners).
Most who buy yacht insurance do so based on price, from people who may not have sufficient knowledge in the field. For owners, this is disaster waiting to happen.
How insurers react to giving cover and then a claim (should it happen) depends on who the broker is, the risk management approach an owner has, and his attitude to the cover provided. The person who arranges the coverage can be just as important as the coverage itself.
Insurance gets a bad rap because only badly handled claims are shouted about. Insurance cover is a contract. An owner expects insurers to adhere to their side of the contract, and insurers expect the same of an owner. A good broker will help in what is a difficult time for an owner and his insurer.
From a safety aspect, regulations already in place need to be tightened and new ones that assist owners (and their neighbours in marinas and mooring places) in a logical and understandable manner are required. How the Hong Kong Marine Department will go about this remains to be seen; negative reactions are already being seen from the insurance industry.
Out of every disaster there is an opportunity. Though premiums will increase and cover tightened, now is the time for the yacht insurance industry to be proactive in helping owners all the way through their cover like the P&I Clubs do, rather than only when they have a problem.
It is also an opportunity for the marine and insurance authorities to create a safer environment for yachts. And owners can use better quality insurance programmes provided by knowledgeable experienced insurance brokers that, while costing more, provide better levels of service.
About the author
Colin Dawson of Expat Marine Ltd, an insurance brokerage, is a yacht insurance specialist with over 25 years’ experience with yacht insurance in the Asia Pacific.