An understanding of Marine Insurance is an essential pre-requisite for all those working in and around yachts.
An insurance company has two functions
- Making a profit on its premiums
- Paying proven claims in the event of loss or damage of an insured asset
Insurance companies do not regulate standards which, in the yachting industry, are the responsibility of the Owners and Yachting trade and associated organizations. Insurance is a financial service that has the sole purpose of minimizing risk for the Owner, Underwriters will pick up the bill for incidents and accidents involving both people and property when a legitimate claim is made and accepted.
Superyacht insurance is defined as ‘’ marine insurance’’.
Marine Insurance is the oldest form of insurance known, going back to the earliest days of international commerce when traders wanted to hedge their bets against loss of cargo due to weather or pirates. Cargo insurance was developed and offered by specialist insurance houses. Hull insurance followed as an extension of the cargo cover.
Babylon by yacht
We know that the Babylonian traders had insurance cover from an engraved burial pillar in Mesopotamia (known as the Code of Hammurabi who was King around 2,300 BC). Inscribed on the Code were some 282 policy clauses showing that these early businessmen practiced a form of insurance known as “bottomry”.
There arose, naturally, a need for laws governing Marine Insurance, established as codes and conventions. Over time these were set into law both by government and case law. These laws are well established and are both understood by both insurance brokers and the legal system. An owner, therefore, can be assured that any insurance policy offered is backed up both by convention and law
Insurance is contracted through an intermediary, either a broker who negotiates on behalf of the Owner, or through a representative, operating on behalf the Insurance company as an underwriter or Lloyd’s agent. One side is the ‘risk taker – that is the Insurance Company – the other is the insured – the Owner. This intermediary has an important role in explaining and defining what risk is being insured and establishing a contractual framework for both the Owner and risk company.
Ye men of good faith
There has to be utmost good faith and full disclosure of all facts known. Failure to disclose can invalidate a claim. This description of the risk provided by the Insured party determines the premium set by the Insurer, who has to rely on the description of the risk provided. There can be no understatement of risk.
The broker drafts his offer according to the characteristics of the vessel defined by:
– The brand
– The Market Value
– Its use (private / charter)
– The Flag
– The size
– The areas of navigation
– The history
The modification of one of its vectors modifies risk assessment by the insurer and the insurance company. It is therefore important to compare all types of insurance offered by different brokers and underwriters to optimize the guarantees and premiums.
If there has been material misrepresentation, either party can withdraw from the contract – technically the insurance contract can be rescinded or ‘voided’.