Yacht insurance should be of top priority when investing in your own craft. If insurers request a valuation they will require a surveyor to do this but in reality, a yacht broker is best placed to give a valuation as they are dealing with these things on a daily basis and know what’s happening in the market.
There are several challenges faced when assessing the value of a yacht. An owner often feels his yacht is worth more than it actually is, in some cases looking to keep a sum insured as close to his purchase price as possible so that this would be paid in the event of a total loss (no matter how long he has owned the yacht) or just feeling its worth more than it is. If a refit has taken place owners often wish that all costs are added to the previous value in the belief that the refit has added more value to the yacht. Unfortunately, the amount spent on a refit does not often increase a value of a yacht and insurers would usually consider an increase
in value of about 2/3rds of the refit cost.
It is fair to say that a production yacht will lose quite a lot of value immediately after it is delivered and then will depreciate in value year by year after a couple of years. Insurers will usually allow the purchase price to be the sum insured for a few years before expecting
an owner to re-evaluate things but if an owner is unrealistic in the value of a yacht it can have serious consequences.
If a yacht is wildly over insured and there is a total loss, even with an agreed value policy, insurers may question the value. If this cannot be proven insurers may reserve the right to pay a proportion of a claim in relation to the amount over insured. Very often we see owners wishing to insure a lower value in order to save premium. In the event of a partial loss where insurers are required to replace new for old, the value could be questioned and, again, insurers may be liable only for the relative proportion in settlement. In the event of a total loss insurers will pay the full amount but then, for a very small saving in premium, the owner has lost a significant amount of money. Most yacht insurance policies today are
All Risk policies based on Agreed Values and do not apply a reduction when replacing parts in older yachts. However, there are some insurers still working on the outdated Institute Yacht Clauses which are totally inadequate (especially for motor yachts) with many exclusions and leaves the burden of proof on the owner to demonstrate to insurers that his claim is valid whereas the more modern All Risks policies are the other way around where insurers have to prove a claim is not covered by insurance if they do not wish to pay. Some insurers will also base their cover on Current Market Value which, like car insurance, only pays the amount insurers deem a current market value at the time of a loss whereas an Agreed Value fixes the value at the inception of cover. Applying a reduction on the cost of parts when a repair takes place due to an age of a yacht can give an owner a very rude awakening when trying to have a claim settled as, on top of his deductible, he may find himself receiving a settlement which is a fraction of what he expects.
The above reminds us of the importance of always reading the terms and conditions provided and have this done by someone who fully understands the consequences of an insurance policy being misunderstood or a cover being bought purely on the basis of price. Further, it demonstrates the important value of appointing a specialist broker who understands what to look for in a policy and advise accordingly. Never be afraid to ask your broker questions. He is there to advise you and it is his legal requirement to look after
your best interests.