By Colin Dawson

Searching for insurance can appear to be a daunting task. There are many providers, all of whom claim they offer the best programmes and, of course, at a lower price. Most people will admit (some reluctantly) that the lowest price rarely gives the best quality. It is all about striking the right balance, as often the most expensive option also doesn’t offer the best value for money.

While there are many who claim to be able to advise on yacht insurance, it is in fact a very specialist area, and there are very few genuine specialists who have the necessary experience – both with yachts and insurance – to offer an owner proper advice based on long-term experience and extensive knowledge.

Who Should I Go To for My Insurance?

Many owners have their yachts looked after by managers, and many of these will claim to be able to advise on insurance matters. In the same manner, it might seem easiest to ask the yacht dealer or broker to handle insurance for you. While individuals may have certain knowledge of yacht insurance, different countries have different rules around who can advise an insured party about insurance. Hong Kong is particularly strict on this, requiring anyone advising on insurance to be properly licensed and insured themselves to give such advice. Of course, anyone can recommend insurance brokers to speak to, or discuss which insurers they have found to be good or otherwise, but only those who are properly licensed can be the ones advising on or recommending quotes to you. The people who are legally able to provide such advice are licensed insurance brokers or agents, who in turn obtain quotes and cover from underwriters.

With the above in mind, it’s important to understand the difference between a broker, an agent and an underwriter:

• The underwriter (or insurer) is the company that provides the actual insurance cover and with whom the owner has the insurance contract. They pay the claims and set the terms of cover.
• An agent represents an insurer to sell its products and is legally bound to represent them. In some countries the number of insurers an agent can represent is limited (Hong Kong being one).
• An insurance broker is an independent advisor whose legal obligation is to the insured party. The broker is not limited in the number of insurers that can be approached for cover, though better-quality brokers will discuss risks with insurers they trust to give good, honest cover that will pay a claim in a fair and reasonable manner.

Many people feel that they need to obtain quotes from several brokers to show they have done their due diligence, or in the belief that they will get a cheaper offer. In fact, this can work against a client. Especially with yacht insurance, the market can be small, and it’s likely that an insurer will be approached numerous times by different brokers. The insurer will soon tire of this and will be less likely to go the extra mile to provide the best terms.

To obtain the best result, an owner should meet and discuss their risk with several brokers before deciding which one to work with, ideally giving them a contract for, say, three years to look after their interests. Once this is established, the broker can really do their job and approach relevant insurers in the market to obtain the best terms possible. If an insurer knows only one broker will be approaching them for terms and they want the business, they will work harder to be more competitive.

A good broker should be able to provide an owner with several quotes to choose from, depending on how complex the risk is. At the beginning of a programme, the broker’s role is to put the owner in a position where an informed decision is being made, not to pressure the owner into any one option. How that relationship develops, and how a claim is handled, will be the subject of future articles.

How Should I Go About Obtaining Quotes?

An insurance broker is, of course, going to be looking to win business, but this must be done in a fair manner that is not ethically questionable. Often an insurer will want a letter from an owner giving the broker authority to obtain terms, especially if they have already quoted for or currently underwrite the business. There are two types of letters:

• Broker of Record, or Letter of Appointment – this can only be given to one broker and gives that broker exclusivity to discuss terms and cover with an insurer.
• Letter of Authority – this can be given to anyone to approach insurers for terms.

Many insurers will only give quotes to the first broker that approaches them, and without one of the above letters this is the most honourable way to act. It is, unfortunately, quite common for brokers with more questionable ethics to send a draft Broker of Record or Letter of Appointment to an owner to sign, advising them that this is needed to obtain terms. This, quite simply, is misleading, as all that’s needed is a Letter of Authority. With such an appointment letter, the owner is giving absolute exclusivity to the broker when, in fact, all they are trying to do is ask them to obtain terms. The broker is, in essence, blocking the market to other insurance brokers, which is often not the insured’s intention. Many owners will not understand the differences between these letters, but they are important differences.

What Are the Lessons Here?

• Give yourself plenty of time to arrange your insurance and don’t leave it to the last minute.
• If your yacht manager or dealer/broker offers to obtain insurance quotes for you, ask to see their Technical Representative licence number to ensure they are complying with the law.
• Read any document you are asked to sign carefully, ensuring you fully understand its consequences.
• Appoint one broker to handle your interests, after interviewing several.
• Don’t be persuaded by anyone who bases their programmes on the cheapest price – the cover offered by different insurers can vary widely.

Colin Dawson is a yacht insurance broker with over 25 years’ experience in yacht insurance. He will be happy to answer any queries on the above at colindawson@tgg.com.hk.