Insurance Alternatives

No, not the usual lament. I was thinking.... yes I know, dangerous.

There are health expense coops, more often than not run by churches. Groups of basically self insured people. All put money in the pool, and it's not a lot compared to commercial health insurance. You pay for the little stuff. Doctors visits, minor meds etc etc. But if you end up in the hospital for 200K they pay the bill.

I am sure there are actuary types on this forum. Could we have coops of boat owners that self insure? Not for the little stuff, say $10,000 deductible. But agreed values for liability and catastrophic loss, with serious requirements for storm prep etc etc. And if the wrong storm hits at the wrong time and the fund gets wiped out it pays pro rated on the insured values and dissolves........

Not perfect but better than nothing......

You can always self insure. That simply means that you assume all the risk.

many/most Large businesses do it with their medical care. They do not buy a policy for their employees they hire a servicing company to do the claims work and they write a check each month for the valid claims.

As far as boat insurance it might be a good idea to look at the actual percentage of profits made by insurance companies before you consider a relatively small pool approach.

Then consider yopur actual risk in your location Vs the nationwide risk assumed by a regular insurance carrier. Is your area subject to destructive level storms for example.

Then if it works out in your favor simply buy a surety bond for the liability you need to demonstrate the ability to cover and you are golden.

oscar said:

No, not the usual lament. I was thinking.... yes I know, dangerous.

There are health expense coops, more often than not run by churches. Groups of basically self insured people. All put money in the pool, and it's not a lot compared to commercial health insurance. You pay for the little stuff. Doctors visits, minor meds etc etc. But if you end up in the hospital for 200K they pay the bill.

I am sure there are actuary types on this forum. Could we have coops of boat owners that self insure? Not for the little stuff, say $10,000 deductible. But agreed values for liability and catastrophic loss, with serious requirements for storm prep etc etc. And if the wrong storm hits at the wrong time and the fund gets wiped out it pays pro rated on the insured values and dissolves........

Not perfect but better than nothing......

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Yes you could. Among the problems: Insufficient members of the pool in early years for an actuarial loss forecast to be of much use; Refusal of Lenders to accept pool coverage in lieu of coverage with a rated insurer; similar refusal from Marinas to accept pool coverage in lieu of a rated insurer.

For the pool to work at all it would have to be significantly cheaper than commercial insurance AND produce enough income to pay the claims.

The problem is that Commercial yacht insurance in general is not particularly profitable. The insurers operate at a combined ratio of around 100% (+/- 10%). Meaning that expenses of claims, operating expenses, salaries etc constitute approximately 100% of income from premium. Insurers have to keep the majority of their cash in liquid form. The income from that stash provides the profit in the business. As we all know interest rates for short term investments are essentially 0% which is one reason why insurance premiums have been escalating in the past 2-3 years.

Most successful pools (am thinking here principally about MedMal pools put together by Medical professionals for their medical malpractice liability) start out buying reinsurance commercially for 90% or more of their exposure. They retain 10% of the risk, and 10% of the premium and over the years if they are successful they are able build capital and therefore reduce the reinsurance purchase percentage and retain more of the premium.

~A

Liability insurance isn't really that expensive, which is basically what you're talking about.

Insurance is simply pooling risk. You can call it a co-op or whatever else you want. The concept is the same.

Insurance by any name works best with a large pool and a small number of claims. Big enough and there will be administrative expenses. I'm not sure what profit margin the insurance companies take out, but there are obviously competitive pressures keeping them at least somewhat in check.

My gut says it wouldn't be worthwhile to re-invent that system. Maybe if a large non-profit took the helm we could save whatever amount is currently going to stockholders. But to insure expensive assets against expensive losses like collisions, hurricanes and oil spills would seem to require a very large pool.

CaptTom said:

Liability insurance isn't really that expensive, which is basically what you're talking about.

Insurance is simply pooling risk. You can call it a co-op or whatever else you want. The concept is the same.

Insurance by any name works best with a large pool and a small number of claims. Big enough and there will be administrative expenses. I'm not sure what profit margin the insurance companies take out, but there are obviously competitive pressures keeping them at least somewhat in check.

My gut says it wouldn't be worthwhile to re-invent that system. Maybe if a large non-profit took the helm we could save whatever amount is currently going to stockholders. But to insure expensive assets against expensive losses like collisions, hurricanes and oil spills would seem to require a very large pool.

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Indeed. A very good example of this working in practice is the International Group of Protection and Indemnity clubs. These mutual clubs insure the vast majority (90%+) of the world's large commercial vessels (Tankers, Freighters, LPG/LNG tankers, Cruiseships etc). The members of these clubs pay an Advance Call (premium) that is anticipated to cover the costs/claims of operating for the year. If they get it wrong there will be one or more Supplemental Calls (additional premiums) after 3 years or so (once the claims for a particular year have matured).

These clubs started in 1855 as a means by which ship owners could mutualize their exposures since the cost of commercial coverage was deemed too high at that time and are still going strong 170 years later.

Incidentally the largest single insurance program in the world's insurance markets each year is the reinsurance program that is purchased by the International Group of P&I clubs. So they buy a LOT of reinsurance!
~A

The big expense may not be damage to the boat.
Pump a gallon of oil over board and the oil spill remediation folks can hand you a $100,000K bill.

Good points and "could" be a viable option. However, would require a fair amount of work and getting it going would be challenging.



Seems to work ok in the med field.



So, who is willing to get this going?

AlanT said:

The income from that stash provides the profit in the business. As we all know interest rates for short term investments are essentially 0% which is one reason why insurance premiums have been escalating in the past 2-3 years.

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That makes sense........

Yes, who's willing to get it going. Economics abhor a vacuum, so with the increased need for insurance there will hopefully be something that fills it. I can't see all these yachts being uninsurable for long.....

oscar said:

That makes sense........

Yes, who's willing to get it going. Economics abhor a vacuum, so with the increased need for insurance there will hopefully be something that fills it. I can't see all these yachts being uninsurable for long.....

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I can see MANY yachts being uninsurable into the foreseeable future. A lot of the older ones, it's just not cost effective with the high premiums. I could argue that once the hull premium hits about 1% of value, the premiums don't make a lot of sense. But, that's still a personal choice.