Although not on the top of politician’s and media’s indicators of economic revival, financial results coming out of the world of superyachts suggests that this industry is showing significant growth.
For the first time in four years this industry is reporting increases and showing renewed optimism. The results from the 2014 Show Boats International Global Order Book show an increase in orders with a 6.2% increase from the 2013 Order Book. Although the increase in larger yachts will have stolen the headlines, the real proof of a more buoyant Superyacht market is the 15.5% increase from the previous year in orders for of 80-99 foot yachts.
The UK superyacht industry matches this international trend posting some strong results with Superyacht UK in their 2013 Annual survey quoting a 51% increase in orders to UK yards based on the length of projects, consolidating the UK’s position as the fifth in the top 10 of yacht builder nations narrowing the gap between them and fourth placed USA. The survey also published figures showing relatively strong year on year growth of 3.9%. This has generated an industry now employing 3,500 people in the UK with a combined market turnover of around £460 million.
The buoyancy is not limited to new build contract either with positive reports coming out of yards undertaking refit activity and the worldwide second hand brokerage market being worth around US $3,000,000,000 to the world economy. Major boat shows around the world, such as Cannes, Monaco and Fort Lauderdale, all reported an increase in numbers from previous years with buyers from Asia, Russia and the Americas.
Therefore, with more yachts being built, sold, delivered and chartered there is more business out there for insurers. Superyachts, because of their value, and the value of the items onboard (including the some of their passengers) need specialised, and often bespoke, insurance cover. Therefore the London market does remain the leading player in offering Superyacht insurance.
A more buoyant market should therefore lead to premium growth for insurers in this area but it also leads to an increase in insurance claims with the knock on effect of an increase in litigation.
Although it is generally felt that Superyacht insurance is a good risk for underwriters, largely because of the quality of crew and state of the art technology onboard, there are going to be claims and such claims are usually costly. Claims can relate to collisions, heavy weather damage and fires on board. Fires, in particular, cause costly damage, no matter how small, because of the value of the fixtures and fittings and the materials used in the construction of superyachts.
In terms of more specific claims, the insurance industry is experiencing claims relating to the transport of yachts across the world, often onboard container vessels as owners demand their yachts to be in the best areas of the world depending on the global climate. Insurers are also seeing claims outside of the traditional cruising grounds of the Mediterranean and the Caribbean where there is an increased chance of weather related damage aligned with a lack of assistance from emergency services and recognised yards.The “hot topic” though over the last couple of years when it comes to claims is that of painting Superyacht hulls.
The well-publicised dispute surrounding Russian tycoon’s, Andrey Melnichenko’s yacht “A” illustrates the difficulties (and costs) involved in repainting modern superyachts to the exacting standards expected by wealthy owners. It is estimated that the claim was worth in the region of £64 million, and that was before legal costs. However this is not an issue that only effects the largest yachts as repainting yacht hulls is the single most expensive maintenance task that needs to be carried out on a regular basis. Therefore it should come as no surprise that insurers will see more disputes relating to disgruntled owners not happy with the finish on their yachts, whether that is against the yards carrying out the work or directly against insurers following repairs paid under an insurance claim.
The cynic might say that an increase in claims is only good for the lawyers and that lawyers seize on such trends as an opportunity to increase their profits by jumping on that particular bandwagon. However an increase in litigation in a certain area such as this can also have the effect of increasing awareness within the industry as to a particular problem that needs to be rectified or handled better. It is of no coincidence that there has been an industry push, led especially by ICOMIA (the International Council of Marine Industry Associations) and ISO (the International Organization of Standardization), to discuss and develop industry wide standards as to the processes needed to apply coatings on to yacht hulls.
To protect themselves and their assureds, insurers should ensure that they are involved in these technical developments through collaborative discussions with such organisations as ICOMIA and ISO. This can be done by institutions such as Lloyds of London organising specific technical working groups to provide a collective view on how such issues effect their part of the superyacht industry. Insurers should also liaise with other industry organisations such as Superyacht UK and the Superyacht Claims Adjusters’ Associations (SCAA) to consider how best to deal with controversial areas and look to assist in the creation internationally recognised standards.
It is these standards that can then be used to form the basis of policy wordings and warranties within the Superyacht insurance sector. Standards provide certainty, and although subjects such as the quality of a Superyacht coating will always to some degree be subjective, it is such standards that can be used to measure risk and liability by insurers, surveyors, lawyers and, ultimately arbitrators and judges, should a claim occur.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.