The 2018 windstorm season could prove pivotal for the yacht insurance market, which has already seen capacity shrink and rates rise in the aftermath of hurricanes Harvey, Irma and Maria. This is creating challenging conditions for owners and underwriters alike. However, specialist markets are still writing and as long as brokers and insureds do their part, coverage can be found.

Losses

On 1 June the Atlantic hurricane season began all over again. Hurricane forecasters are split on how severe the season will be. Early projections from the respected Colorado State University are predicted an above-average Atlantic hurricane season in 2018, with an expected 14 named storms. Of these, seven are forecast to become hurricanes and three to reach major hurricane strength.

2017 saw hurricanes Harvey, Irma and Maria tear across the southern United States and Caribbean, destroying or damaging yachts in southern Florida, British Virgin Islands, St Martin and St Thomas. Some 63,000 boats were damaged by hurricanes Harvey and Irma in the US alone, at a cost of an estimated USD655 million, according to the Boat Owners Association of The United States.

For London’s yacht insurers, the windstorm season followed a number of already costly attritional losses including significant groundings and fires in recent years . The Lloyd’s yacht market has reported a loss ratio in the region of 220% for 2017, a figure that could exceed 300% once all losses mature.

Market hardening

Overhauling a decade of soft market conditions, London has responded to these losses with a significant reduction in capacity and competition. Where there were many syndicates writing yacht insurance as a component part of their wider marine hull account and not as a dedicated specialist underwriter. Currently there are now just a few specialists prepared to consider catastrophe exposed risks, even on a renewal basis.

Appetite for yacht risks across the market has declined, with several facilities and binders non-renewing. As a result, rates for catastrophe exposed yacht risks have increased by a minimum of 35-45%, with rises of up to 100% being given in some instances. Alongside significant rate rises, deductibles have also increased for catastrophe exposed vessels, with windstorm deductibles doubling in some cases.

Hardening is not limited to last year’s windstorm loss affected areas with other catastrophe exposed zones seeing increases. Even non-catastrophe exposed yacht risks – such as those in the Mediterranean – are seeing increases of at least 5-10%.

In the US many of the carriers were also hit hard by the hurricane season. For some this meant a cutback in writings and even divestment. However, others initially took advantage of an upturn in pricing following a wider reduction in capacity for wind exposed vessels. This in turn led to them quite quickly assuming much greater Natural Catastrophe exposure and aggregate capacity is being tested.

Generally we are seeing an increase in North American enquiries as brokers are searching for the best deals for their clients. In some cases this means any coverage that might be available. The smaller yacht owners are facing the greatest challenges.

Outlook

It is too early to tell how many carriers will continue to participate in the yacht insurance market, although the hardening of the market since last year’s hurricanes is likely to be sustained. Further capacity might yet be attracted back to the market by improved conditions, but an active 2018 hurricane season could result in further withdrawals or shift in capacity to other lines of business where catastrophe exposure rates are higher.

Aggregation is a big concern for yacht underwriters, with some no longer willing to quote on catastrophe exposed risks. For those that are, there is a much greater emphasis on knowledge and control of their portfolio – translating to robust proposal forms, mooring location choices and windstorm preparation plans.

Broking

Miller’s specialist knowledge and market relationships mean that we have been able to place yacht risks where other intermediaries have struggled. Our expertise enables us to advise clients on how to get the best out of the London market and we are working closely with the Lloyd’s market in particular to ensure our clients have continued access to yacht insurance.

Despite the disruption, Miller’s yacht facilities renewed without a reduction in capacity. We are also working with insurers to develop new products for our clients that should help alleviate the situation. 

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Miller's hull & machinery risks capabilities 

Mitigation

Today’s state of play is that yacht risks in catastrophe exposed areas are challenging to place. However, owners can mitigate the worst of the increases by taking steps to reduce their risk profile.

In particular, underwriters will scrutinise windstorm preparedness, so the ability to show practical and well thought through plans could give access to more choice and better terms and conditions. It is also worth considering alternative contingency plans - such as manning vessels during hurricane season or moving vessels further south and away from the highest risk areas - which may persuade more underwriters to quote for cover. North of Cape Hatteras is considered a watershed.

If owners are prepared to accept named windstorm exclusions then it is possible to secure terms reflecting the reduced underwriting risk. 

Conclusion

Whilst hardening is likely to continue, working with a broker that understands the intricacies of the risk and the nuances of the yacht insurance market can help to smooth an otherwise bumpy ride. It is not all a tale of doom and gloom. For example appetite for yachts permanently based in Canada and West Coast USA remains reasonably healthy. This is a market in a state of flux and our team are ready to assist and support.

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