If premiums differ between two insurers - unless one of them is making far more profit or benefits from economies of scale - then the events covered or how much will be paid out will be different.
How are premiums calculated?
Insurers set what are called ‘equitable’ premiums – which means they should be fair to both the insurers and the policyholders. The premiums collected from all policyholders need to cover the insurers’ administration costs, any commissions they pay to intermediaries, and the claims of the small percentage who will suffer an accident – and then generally return a small profit.
In some years insurers will, indeed, make a profit, and at those times – particularly if you are one of the lucky ones who haven’t needed to claim – you may be inclined to think insurance is just a big rip off. But almost all insurers of boats will also experience years in which they suffer losses, and sometimes those losses can be pretty significant, particularly with changing weather patterns!
Insurers will assess what they believe to be the degree of risk each policy brings to the overall portfolio of business. So they will assess the experience of the owner or skipper, the type and age of the boat, the use to which it will be put, and the location in which it will be sailing and wintering.
Why is a location a risk? Well, there are many reasons. A boat kept in a marina is subject to different risks than a boat on a tidal estuary mooring. With people sailing further afield, insurers have to consider the risks posed by pirates, as well as geographical features such as reefs and storm patterns. But another factor is the cost to insurers of handling claims and the cost of actual repairs in locations that are further away from home territory – sometimes involving repair facilities whose expertise is an unknown quantity, and sometimes having to arrange to move the boat to another location for repair. If the boat can be repaired locally, the claim may include the cost of transporting, for example, a replacement mast from the supplier to some far flung island.
Once the insurers have assessed all the factors, they decide on a premium rate, which is then usually applied to the sum insured (value of insured property) to determine the annual premium.
No claims bonus
Many insurers now offer a No Claims Bonus system on yacht insurance. It’s worth looking at this, as it can vary between insurers. Some offer NCB building up in 5%’s, usually from 5-20%, whilst others may make jumps of 10% or 20% annually with higher maximum NCBs. Some insurers will protect NCB against certain types of claim, or against the first claim in any one year. Check what happens if the NCB is not protected. If you have a claim will the NCB be reduced, or will it disappear completely? Watch out for wording that says the No Claims bonus will only apply if there have been No Claims in the previous year!
The ‘excess’ is what we have to pay ourselves when we have a claim – the sum ‘in excess of which’ the insurers will meet the costs. The excess may also be called the ‘deductible’ – that part which the insurers deduct from payment. The excess can vary from insurer to insurer – not just in amount, but also in the way it is applied – so if you are comparing two policies, one with a higher excess than the other, look also to see what types of claims it does or does not apply to. Some insurers will apply it to all claims except total loss, other insurers don’t apply it to some types of partial loss claims.