Marine Insurance

[psneeld]

Check out your home/car insurance agency. When Geico sent me a non renewal notice (reason not important) I found that my agency with which I already had a substantial relationship (home, 3 vehicles, jewelery, etc) offered good coverage (damage, liability, etc.) at a lower price than marine insurance brokers offered. My point is check out all possibilities. And let’s not start arguing “yacht vs boat” insurance.

Yacht versus Boat as a dock talk descriptor may not be important but in my experience the way insurance companies view it it can be huge.

 

[BandB]

As others have indicated, shop for a broker, not a policy. Then let the broker do the work and advise you. The cheapest policy will never be the best, as you've found out, because the easiest way to lower the price is by reducing coverage. The age of your boat will be a challenge for a new policy and after all is said and done, you may be advised to stay right where you are. The brokers mentioned in this thread have excellent reputations.

 

[rjwilliams11741]

Since you are in SD you might want to give Beth a call at Douglas K. Smith Marine Insurance in Pt. Loma. They got me a pretty good policy for my boat and Beth is really responsive. bchavet@dksmarineinsurance.com

I'll second that recommendation. Beth handled our insurance for over 20 years, 11 of those years we were cruising in Mexico. She always found us good coverage at reasonable prices.

 

[Alaskaflyer]

Since you thought of liability only, How about ask them what if the agreed value was say $50,000. I am suggesting go below market value with the agreed value.

My experience with this is with airplanes not boats, but the cautionary note in my head says that if you experience a more-than-minor covered damage event and file a claim, this situation can mess with the underwriter's formula for total loss vs repair, screwing you in the end. Maybe that risk is more theoretical than practical, but possible.

 

[AlanT]

My experience with this is with airplanes not boats, but the cautionary note in my head says that if you have a partial loss, this situation can mess with the underwriter's formula for total loss vs repair, screwing you in the end. Maybe that risk is more theoretical than practical but it is brought up among airplane owners fairly often.

I believe that you are thinking of Co-Insurance. In the event of a partial loss the Insurance Adjuster will calculate the Actual Value of the vessel. (this is going to be the market value of the vessel prior to loss). In the event that the insured value is less than the Actual Value then the insurer pays that same percentage of the Insured Value for a partial loss. So if you insure a vessel with an Actual Value of $100k for only $50k you would only receive 50% of any partial loss. In the event of a total loss you would receive $50k.

Note Coinsurance provisions should not normally be included in a policy that is written on an Agreed Value basis. A typical Agreed Value policy contractually agrees the value of the vessel as between Insurer and Insured and Co-Insurance will therefore not apply.

There may however be provisions within such a policy that delineate certain insured items that are subject to wear and these will be depreciated. These items will be listed in the policy. For example Sails would be depreciated over a presumed life span as part of the adjustment of the loss.

For the above reasons it is unlikely that an insurer would knowingly allow an insured to insure for less than the actual value when issuing an Agreed Value policy.

~A

 

[AlanT]

When folk talk about a "Boat Policy" as contrasted with a "Yacht Policy" they are usually focusing on this difference between Actual Value and Agreed Value.

The danger of an Actual Value policy is that if the Insurance Adjuster determines (post loss) that the Actual Value of your vessel immediately prior to the loss is higher than the amount you insured for, then he will adjust the claim downwards by that percentage (as specifically stated in the coinsurance clause in the policy). There may be a provision that allows some waffle room. For example an 80% coinsurance clause might state that the insured is required to insure for at least 80% of the actual value in order not to have his partial loss claim reduced.

By contrast and as noted in my prior note an Agreed Value policy (often also called a Yacht policy) is not going to have a coinsurance clause.

~A

 

[SteveK]

AlanT
Interesting comments. However I understand agreed value as just that and not related to market value. I stand to be corrected but an agreed value policy does not fluctuate with the market. In the past year bot prices have gone up due to demand and therefore market value policies would pay more on the same boat this year.
Also, insuring for less than market value signals the underwriter there is less of a chance for a claim under suspicious circumstances. JMO
If my theory is correct i will have no problem getting the insurance renewed again on this 50 year old boat. That and they made note of some safety features I have added, and some open flame heaters removed prior to last renewal.
My theory is that insurers look at probability/likelihood of a claim when no amount of premium is worth insuring you.

 

[Alaskaflyer]

I believe that you are thinking of Co-Insurance. In the event of a partial loss the Insurance Adjuster will calculate the Actual Value of the vessel. (this is going to be the market value of the vessel prior to loss). In the event that the insured value is less than the Actual Value then the insurer pays that same percentage of the Insured Value for a partial loss. So if you insure a vessel with an Actual Value of $100k for only $50k you would only receive 50% of any partial loss. In the event of a total loss you would receive $50k.

Note Coinsurance provisions should not normally be included in a policy that is written on an Agreed Value basis. A typical Agreed Value policy contractually agrees the value of the vessel as between Insurer and Insured and Co-Insurance will therefore not apply.

There may however be provisions within such a policy that delineate certain insured items that are subject to wear and these will be depreciated. These items will be listed in the policy. For example Sails would be depreciated over a presumed life span as part of the adjustment of the loss.

For the above reasons it is unlikely that an insurer would knowingly allow an insured to insure for less than the actual value when issuing an Agreed Value policy.

~A

Mmmm...maybe a problem too but, no, not thinking of the typical commercial coinsurance arrangement. Talking about the underwriter's typical analysis during a loss and their calculation of the value of the residual salvage that becomes the property of the insurance company by contract, vs. repair costs. A vessel that would normally be repairable - should be repairable - through the claim process will (could?) be declared a total loss and then the owner is compensated at the underinsured agreed value leaving one heck of a gap for his/her replacement shopping. Or in some cases having to choose to buy the same boat twice by purchasing the salvage from the underwriter and then doing the repair themselves. But I'm not an expert and maybe I'm explaining it poorly.

 

[AlanT]

AlanT
Interesting comments. However I understand agreed value as just that and not related to market value. I stand to be corrected but an agreed value policy does not fluctuate with the market. In the past year bot prices have gone up due to demand and therefore market value policies would pay more on the same boat this year.

You are correct that market value fluctuates and that the Agreed Value on a policy does not.

However taking your hypothesis on prices going up during the policy period:
If you insure your boat on an Actual Value policy for, say $100k and that vessel becomes worth $125k at the time of the loss here is what would happen:

If the claim is a total loss you will receive the amount you declared on the policy ie $100k. You will not receive $125k.

If the claim is a partial loss of say $25k the Loss Adjuster will determine that the market value is $125k and will then look at the coinsurance clause to determine whether to reduce your claim for underinsurance. If the coinsurance clause allows 80% then the calculation is $125k X 80% = $100k. Since you have insured for $100k you have satisfied the coinsurance provision and your claim of $25k will be paid in full less the deductible.

However if in the partial loss scenario above the Coinsurance clause does not have an (80% or other percentage) allowance then the claim calculation will look like this:

Market value $125k. Insured Value $100k Underinsurance 20%. Any claim that is not a total loss is reduced by this 20%. Partial loss claim of $25k less 20% is $20k. Claim will be paid for $20k less the deductible.

Final example with an 80% coinsurance clause: Insured Value $100k but Market value at time of loss is $150k. Partial loss incurred is $50k.

Calculation: Insured is required to insure to 80% of Market value to avoid coinsurance. Market Value $150k Times 80% = $120k. However vessel is only insured for $100k. Vessel is underinsured therefore by 16.67% (100/120*100-100). Claim of $50k is reduced to $41.7k before application of the deductible.


In conclusion there is no circumstance under either an Agreed Value, or an Actual Value policy where you will receive more for a Total Loss than the amount stated on the policy. Regardless of whether Market value is higher.

In an Agreed Value policy you will always receive the amount on the policy for Total Loss, whereas on an Actual Value policy that is the most you can receive and if Market value proves to be higher than the amount on the policy you may suffer a reduction in your claim as calculated above.

It is for this reason that Agreed Value policies are highly preferred. You know what you are going to get, and you do not have to engage in expensive litigation or more likely arbitration since there is nothing to contest.

Ultimately insurers want values to be set fairly. If Insured values are too high, insurer has a fear of moral hazard making claims more likely especially in hard times. If insured values are too low, Insurer does not get sufficient premium for partial loss exposure. (Bear in mind that the portion of the premium that you pay that is allocated to Physical Damage (as opposed to liability) is rated against the insured value. So the lower the value the lower the premium).

Coinsurance allows Insurers to 'regulate' by creating a penalty for underinsurance. The reason for the 80% (ie 20% waffle room) is to not unfairly penalize a conscientious insured that sets a fair value at policy inception, but then experiences an increase in market value during the period of the policy.

Hope this is helpful. I do apologize for its length! (as the bishop said to the actress).

 

[AlanT]

Mmmm...maybe a problem too but, no, not thinking of the typical commercial coinsurance arrangement. Talking about the underwriter's typical analysis during a loss and their calculation of the value of the residual salvage that becomes the property of the insurance company by contract, vs. repair costs. A vessel that would normally be repairable - should be repairable - through the claim process will (could?) be declared a total loss and then the owner is compensated at the underinsured agreed value leaving one heck of a gap for his/her replacement shopping. Or in some cases having to choose to buy the same boat twice by purchasing the salvage from the underwriter and then doing the repair themselves. But I'm not an expert and maybe I'm explaining it poorly.

You are explaining well. Salvage & Recoveries is not something I addressed to try and keep this topic somewhat manageable!

Yes you are right. If you underinsure your Agreed Value you have essentially gifted the Insurer an asset in the damaged plane when you accept settlement. In order to receive settlement of a Total Loss (TL) you have to tender abandonment of the property to the insurer who then has ownership (if the insurer accepts). I am unfamiliar with Aviation Loss Adjustment having spent my career in the Marine/Energy field, however in the commercial marine field it is very common, after tendering a TL for the insurer to offer to sell the damaged vessel back to the insured for a negotiated amount. This can then be part of a global claim settlement (TL minus agreed value of salvage = insurer payment) and insured keeps the property.

In the commercial marine and energy business (and I suspect in aviation), the market value of a vessel can change dramatically from year to year. Consequently my former clients would typically re-value their fleets on a very regular basis to ensure that having suffered a TL, they would have sufficient insurance recoveries to replace with substantially similar vessel.

When I was a teenager I wrecked an Ariel Arrow motorcycle (surprised?). The bike was a TL. It was old even then, the adjuster was quite happy for me to take the wreckage off them for practically nothing. I was aware of a junker bike in a garden nearby identical to mine. I bought that for practically nothing and between the two was able to fabricate a pretty nice bike!

~A

 

[Hippocampus]

That Ariel is now a collectible. Hope you held on to it.

 

[AlanT]

That Ariel is now a collectible. Hope you held on to it.

It was a long time ago in a country far far away! It was replaced by a Velocette Venom, then a CB400F then a Triumph 650TR6 then a CB1100F.

Of all of them the only one I regret selling was the Velo. Something about that thumper!

 

[SteveK]

AlanT
Boats have a tendency to depreciate. Suppose at time of insurance the market Value is $100,000 and you insure for $100,000 as actual value. At time of loss it is now 80,000. How much do you get?

 

[AlanT]

AlanT
Boats have a tendency to depreciate. Suppose at time of insurance the market Value is $100,000 and you insure for $100,000 as actual value. At time of loss it is now 80,000. How much do you get?

Good question. If you insure it on an Actual Value policy (basically any policy that does not state that it is an Agreed Value policy) you will get the Actual Cash Value (ACV) which of course is the depreciated value being $80,000. This is pretty much that same as what happens on a standard auto policy (not a collector/vintage auto policy), they will calculate the value of a vessel of that age and that is what they will pay you.

This is clearly rife with the potential for disagreement! Vessels are not cars. They range widely in condition, maintenance, specifications, electronics etc.

If you have an Agreed Value policy you get the contractually agreed amount IE: the Agreed Value that you and the Insurer agreed under the contract.

ACV policies are fine for generic properties such as for example mass produced speedboats that largely have the same or similar specifications and for which there is a "blue book" price available. They are totally inadequate IMO for most if not all of the boats owned on this forum.

I have no stake in this opinion. I retired long ago and never worked in the Yacht insurance industry.

~A.

 

[SteveK]

AlanT
Thank you, good discussion!