Blue Water Insurance, Insurance for Active Cruisers 

“Will the insurance company pay if I have a loss”? This question deals with (1) the financial strength and ability of the insurance company to pay their claims, (2) the policy wording or coverage of the insurance company and (3) the insurance agent you are dealing with. Insurance companies are rated by different rating organizations who analyze each company’s financial strength and ability to pay claims; A. M. Best only rates insurance companies and is the most respected rating organization in the world. See our list of Insurance companies that write yacht insurance for cruising boats and their most current A. M Best rating; Blue Water Insurance only deals with insurance companies rated by A.M. Best.

Policy wordings are either (a) “named perils” or (b) “all risks” with exclusions. If the policy is “named perils” only perils listed in the policy are covered. Furthermore, the insured must demonstrate or prove his claim is a result of a peril named in the policy. “All risks” policies cover all losses except those excluded; the insurance company must prove an exclusion applies in an “all risks” policy. We often use the example of a broken mast on a clear day with no apparent reason for the mast to fail to show the difference in these policies – the loss is covered in an “all risks” policy and not covered in a “named perils “ policy. Obviously, “all risks” policies are better than “named perils policies”. You should also pay attention to the partial loss clause or the replacement cost coverage in either a “named perils” or “all risks” policy……look for depreciation especially if your vessel is over 10 years of age!

Seek a Professional Marine Insurance Agent, one who deals directly with Marine Insurance Companies domestic and foreign and one who has liability coverage, more commonly called Errors and Omissions Insurance. This covers the agent in the event he makes a mistake and your loss is not covered by the insurance carrier. Errors and Omissions insurance is very expensive, make sure the agent has the coverage.

“Is it safe to insure with a foreign insurance company”? Sure it is…..as long as the company has a secure A.M. Best rating. Be sure you verify the company is rated, B+ or higher with at least 100 million in policyholders surplus. Many domestic US companies do not have sufficient capacity (policyholders surplus) or reinsurance to withstand the catastrophic losses – primarily named and numbered windstorm losses.

“What does ‘USA jurisdiction’ mean”? If you have a claim dispute with the company it must be negotiated in the US courts not in some foreign country whose rules and attitudes towards Americans are suspect. Some foreign insurance companies write yacht insurance polices subject to U.S. Laws and Jurisdiction; if you are an American or your boat is U.S. documented, insist you policy is subject to U.S. Laws and Jurisdiction.

“What does English Laws and Practices mean”? If you have a claim or dispute with the insurance company it will be negotiated in the United Kingdom based on their Marine Insurance Act of 1906! The English system takes the guesswork out of equation; only one (1) in a 1,000 claims ever goes to court. There is no discovery and there are no punitive or exemplary damages in the English system; claimants are compensated based on the principles of the 1906 Marine Insurance Act as determined by the insurance company. In the English System, Legal fees add up even quicker than they do in the USA and most importantly, the loser pays everyone’s Court Costs and legal fees which is the reason so few claims ever go to court. This leaves you with a very small chance that you will ever collect; it is also the reason why polices written subject to English Laws and Practices have substantially lower premiums than polices written subject to US Laws and Jurisdiction.

“Why are the premiums so high”? In the private pleasure yacht insurance business, no one policyholder’s premium is sufficient to cover anything but small claims. Insurance premiums are therefore “pooled” so the larger losses of a few are spread over all policyholders. When the yacht insurance premiums of all policyholders are insufficient to pay the claims, administrative expenses and generate a small profit, insurance companies have to either raise rates or get out of the business (a lot of insurance companies have stopped writing marine insurance business the past 5 years). In addition, the cost of doing business outside of the USA, as it relates to boats is very high. What you soon discover is that almost all boat parts are manufactured in the USA or Europe (a few in Australia & New Zealand). Anywhere else the parts need to be shipped, a costly and time-consuming operation. Sometimes skilled labor also needs to be flown or somehow transported to the accident location. Then there is the modern day version of pirates; they are the unscrupulous salvage and tow operators. A tow of only a few hundred miles may as much as $70,000, and they want the money up front! So you can see it takes a lot of premium dollars spread between cruisers to make up for just a few losses.

Some unusual factors that impact yacht insurance rates are:
1. When a big storm blows thru there are always more then just a few boats that are damaged or lost. The storm losses of 2005 and 2006 have had a significant impact on the number of carriers writing yacht insurance business and the rates they charge (reinsurance costs for catastrophic claims – hurricanes).
2. The terrorist attack of September 11, 2001 on the World Trade Center with insurance losses of $ 50 Billion Dollars will have a profound effect on the insurance industry for years. Twenty five ( 25) years of reserves were wiped out in a matter of a few hours. Rate increases were applied to all lines of insurance, some more than others. It will take a long time to overcome this catastrophe and we are likely to see higher rates for years to come.

“Why must I lock up my tender and outboard before the company will pay for their loss”? Unfortunately, when we cruise through countries less financially blessed as ours the natives only view “rich Americans” and their equipment as an opportunity. What they think is a rich foreigner will never miss it and will not be around long enough to be a problem. It is guaranteed that if the boat and outboard are not locked up they will be stolen at some point of your trip. All cruising insurance companies require them to be locked up, because they have at one time or another paid out more for tender and outboard losses then they received in annual premium.

“Why can’t I pay my premium in payments”? Because boaters are so transient, communications are very difficult on an annual basis let alone attempting to send invoices on any other schedule. If you were to miss a payment the finance company would cancel and you would not have insurance, which could be catastrophic.

“Marine life exclusion, what if a whale hits me”? The exclusion for damage due to marine life does not mean if you collide with a whale, the insurance company doesn’t pay. It generally is referring to damage due to worms, barnacles & mussels etc.

“Why can’t I insure my boat for as much or as little as I want to”? Or “I want to lower my premium” or “I want to make sure I get every nickel I put into the boat back”? All Insurance companies are concerned about over and under insuring boats. If you have a total loss they just want to make you whole again not give you a profit. If you have a partial loss they want to be sure they have enough premium to fix the boat, after all it cost more to repair a $700,000 boat then a $25,000 boat. On the other side of the coin every one got the best deal in town when they purchased the boat, that may be true, but usually there is another like it somewhere at the same price at some time so over valuing is also a problem, it creates a moral risk. The underwriter always wants to know what you paid for the boat and the investment value you have in the boat (original purchase price plus upgrades – not maintenance on the boat); some underwriters will ask you to provide a list of upgrades. The underwriter uses the BUC used boat price guide and a marine survey to verify your investment value in the boat. A current marine survey by a reliable surveyor (NAMS or SAMS) to establish the value of boats, is the primary source underwriters use today.

“Why do I need to survey my boat periodically”? Surveys are for every ones protection; since not everybody maintains their boat in Bristol fashion periodic surveys confirms the value and condition of your boat in relation to others. The survey will also confirm the seaworthiness of the vessel thereby eliminating most disputes as to condition and value if you have a loss.

“What if I have a claim, whom do I call”? Blue Water Insurance Inc. is your initial contact and will do preliminary coordination between you and the company. You may contact us via telephone; fax or email after you make sure the boat is safe from further damage or harm. We then arrange for an adjustor to meet with you at the boat before repairs (other then emergency) are commenced. We will hold your hand through the entire stressful experience.

“What is this depreciation clause”? The partial loss and exclusion clauses of the policy are the “tell all” sections. They tell us what is covered and what is not covered and what is depreciated. Most marine policies have a list of items that are depreciated on boats over 10 years of age (some insurance companies have longer lists than others). Depreciation usually applies to Personal effects, inflatable dinghies, outboard motors, electronic equipment, sails, standing and running rigging, canvas covers, carpets, curtains, cushions or upholstery - Items that for all practical purposes ware out and are worth very little after their useful life (worn out). Much like your automobile policy treats you engine

Depreciation schedules for the items listed above will vary from company to company but they almost never pay you less then 20% of today’s value. For example your battery life expectancy is 4 or 5 year and they may have cost $100 each when new, if damaged at age 2 you would typically get back $60 it is damaged at age 5 you get the minimum $20. Batteries are one of most heavily depreciated items while tenders and outboards at 10% are some of the slowest to depreciate. Everything else falls somewhere between the two, no a large spread between high and low. Depreciation does not apply to labor costs usually does not apply in the event of a total or constructive total loss. Obviously, Insurance Policies with fewer items depreciated on partial losses are better insurance policies!

Summary

Although most people never read their yacht policy or ask these questions until they are ready to go offshore, you should ask yourself, am I dealing with a Professional Marine agent? Is the Marine Agent giving me an insurance company with the financial strength an ability to pay claims, an A.M. Best rated company? As for a copy of the proposed policy wording – is it “named perils”, “all risks”, what exclusions are in the policy, does it have depreciation for partial losses. And finally is the price reasonable for the exposure?

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