Boat Insurance - Navigating Changes

When shopping for new boat insurance, it's easy to get confused by insurance policies' variations in wording and coverage. Just the simple definition of a boat or yacht can be baffling, as insurance companies don't always use the same criteria.

Most insurers categorize vessels by size, with policies for boats under 26 to 30 feet being fairly standardized and sometimes even regulated like automobile insurance. By comparison, yacht policies for vessels over these lengths are unregulated. Yacht insurance underwriters do not have to submit rates or policy wording to regulators nor comply with insurance regulatory laws. Shopping for yacht insurance is very much a buyer-beware endeavor.

One way boaters try to ensure they get the best rate on their insurance is to seek multiple quotes. This sounds logical; just keep shopping until you find the lowest rate. But price comparisons are only valid if policies are written with the same coverages and exclusions.

While comparing quotes helps, it can also be confusing, because of underwriters' flexibility in wording and coverage. It's not uncommon to have language buried in the policy's fine print that minimizes their liability, enabling them to quote a lower rate. You unfortunately may only realize why their rate was so competitive when they deny a claim or only offer a $10,000 payout for a $100,000 loss.

A common and understandable mistake many boaters make when getting competitive quotes is going to multiple independent insurance brokers. It seems easy when walking a boat show, with insurance vendors offering to quote your new policy. The problem is many brokers may go to the same insurance companies for your quote. The first agent to the company may have the quote protected, meaning other agents requesting a quote for you from that company may not get the same price.

According to John Jarvie of Oversea Insurance, an industry leader in yacht insurance in Fort Lauderdale, FL, Every insurance company has a slightly different philosophy on quoting a policy for the same client to multiple agents. Underwriters will choose to offer a quote (or declination) to the first broker who requests it on behalf of the insured. If a second or third broker requests a quote from the same insurer, most underwriters will not release the quote unless the owner signs a Broker of Record letter authorizing the other brokers to quote. In theory, the vessel owner should receive the same pricing and coverage regardless of which broker requests the quote; however, in reality that is not always the practice.

A basic decision you and your insurer need to make is whether your policy will be an agreed value or actual cash value (ACV) policy. How they handle depreciation is what sets them apart. An agreed value policy covers the vessel based on its value when the policy was written, so there is no depreciation for a total loss of the vessel. The agreed value term is normally restricted to a total loss occurrence, while some partial losses may be depreciated. Most large yacht policies are agreed value for total loss and replacement cost for partial losses.

An ACV policy may cost less up front but will also factor in depreciation. These policies only pay up to the vessel's actual cash value at the time it is declared a total or partial loss. Eventually, as your boat ages, an insurer may request to convert your policy to an ACV policy. The problem then becomes determining that value.

If you choose an ACV policy, ask your agent for a copy of its depreciation schedule. These values are determined by many variables, and it is just one way insurance companies quote competitive premiums and hedge a policy's liability in their favor.

Beyond the vessel's insured value, another commonly misunderstood part of boat insurance are the numerous exclusions that all policies contain. According to Scott Stusek, a marine insurance specialist with Gowrie Group in Annapolis, MD, Boaters frequently buy lower-priced policies, not realizing what exclusions the policies have in items like windstorm, geographic restrictions, and percentages of deductibles.

Get the Best from Brokers and Agents

In this area, working with a knowledgeable broker can pay off in lower rates and better coverage. An experienced broker knows the questions to ask that you may not have considered. Most owners pay close attention to the coverages listed on the quote/declarations page (medical payments, personal effects, towing, etc.). However, the more important language is contained within the policy's exclusions, as these are the perils that are not covered. Owners may not realize their policy contains exclusions for manufacturer's defect, latent defect or even mechanical breakdown, says Jarvie.

A broker who is interested in building a long-term relationship as opposed to just selling a policy, will take the time to understand what type of boating you're planning. As Jarvie puts it, The quoting process can be subjective, the broker submitting your information to the underwriters must have the expertise to provide a detailed and appealing presentation on your behalf, otherwise the underwriter may not understand the full scope of the risk. This could result in a higher quote, inappropriate coverage for your type of boat or boating, or possibly declining to offer coverage altogether.

Many people boat as couples. When calling for insurance, it helps to have the most knowledgeable of the couple call for the quote. A good agent looking out for your interest can influence your premium. Being knowledgeable about your boat and type of boating gives an agent the confidence to go to bat for you with the underwriters.

You only have one chance to make a first impression. If the boater is unprepared regarding details of the yacht, your itineraries or the technical aspects of the boat, this can be a red flag to the agent, Jarvie says. Agents are not only rated by the quantity of clients they produce for the insurance company, but also the quality. Agents may be hesitant to sign boaters who could be a high-risk potential.

When asked to quote a new policy, most insurers require you to perform a survey on a boat, if the boat is more than a few years old. This can generate an expensive list of repairs you may need to perform either prior to coverage or to keep coverage in place.

Insurers may also place time limits on when some repairs are completed. The insurer may additionally require verification that an experienced boatyard or even more strictly an ABYC Certified Technician made the repairs. While this may seem extreme, this protects the boater as much as it does the insurer. When considering multiple quotes, ask the broker how each company they are quoting handles surveys before agreeing to the policy.

A good broker will also steer you to companies that have a stable rate history. Most insurance companies are reputable and care about protecting their client's interests, but they have to make money doing it. If a company incurs excessive losses one year from quoting rates too low, their renewal rates may spike the following year to recoup their losses, says Stusek. This forces clients back into the market for a lower rate or to pay the higher premiums. Stusek frequently reminds clients, This is this year's policy; don't be surprised if it changes next year. Insurance rates and policy wording will frequently reflect changes in the company's profits and losses.

It seems inevitable the insurance industry will stay in a constant state of change. The best way to ensure you always have the best policy and the best rate is to build a relationship with a knowledgeable broker who understands the boat insurance industry and your boating needs.