The luxury yacht market is booming with orders up 18% on 2007 - four times the level of 10 years ago. Nearly 1,000 yachts of over 24m are currently on order and the yards building these vessels are booked through to 2011. The picture couldn’t be much more different in the smaller boat market with one of the main US yacht builders cutting 1,000 jobs, and others temporarily halting production. Brokers are having a difficult time too with profits falling by up to 65%. Small yards are going bankrupt by the day and the whole situation is being exacerbated by rising fuel and parts prices.
These were the key discussion points made during Markel International’s first Yacht Insurance briefing that took place in the Old Library at Lloyd’s on 10 July 2008 which featured presentations from Nick Smith, Director of Charles Taylor Marine, and Simon Todd, a partner at Ince and Co.
In his presentation Nick detailed the large and growing gulf between the super and standard yacht markets.
Nick commented on the state of the smaller boat market: “The implications for the insurance industry are considerable. For underwriters, an immediate problem is agreed value policies. The value of vessels is dropping by the day - and no boat can be sold in the current market for any less than a 10-15% discount on asking price. The yacht broker will also be charging the owner 10% of any sale price. An agreed value policy based on original asking price will be worth at least 20% more than the owner’s share of a sale.
Nick added that many owners are finding that they need to cut back their expenditure as they feel the impact of the current economic climate. In general maintenance is among the first things to be cut. In consequence the quality of boats is deteriorating and underwriters should place greater emphasis and importance on pre-risk surveys.
The use of credit is a further issue. Many boat owners have been persuaded to buy their craft with borrowed money, borrowing secured on residential property. Weakness in the property market may result in the outstanding value of loans exceeding the value of the asset supporting that loan. It is hardly surprising that fraudulent claims are increasing as owners struggle with increasing credit costs and decreasing asset values. In particular, false theft and fraudulent personal injury claims are on the increase. Owners are also pursuing these claims more rigorously.
Simon’s talk addressed command and crewing issues, both for smaller owner skippered vessels and larger professionally and third party managed vessels. He discussed recent case law and focussed on the need for the insured to understand and comply with crewing conditions and requirements in policies as well as the need for insurers to express these clearly.