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02/17/2014

Post Sandy Observations: Valuation and Due Diligence are Critical

By Dawn Speros of Gowrie Group

Dawn M. Speros 2013 has been quite the year for the insurance industry. Sandy and Irene cost the industry millions of dollars; behind the scenes these companies are doing what is necessary to limit their exposures to the coverages that cost them the most. And the policy holders are feeling these increases. What can boat owners do going forward? For starters, making accurate decisions about valuations and exercising due diligence when it comes to protecting vessels.

Yacht valuations are in question. When considering the billions of dollars in claim settlements resulting from Sandy, it is not a surprise that yacht valuations are at the forefront of conversations amongst boat owners, boat brokers, surveyors, and marine underwriters. An insurance policy is a contract between the boat owner and the insurance carrier. The most popular type is the Agreed Value policy. The Agreed Value is the client’s vested interest – generally that’s the purchase price of the vessel.

The purpose of an insurance policy is to make whole the insured in the event of a loss. Not less nor better than the boat owner was before the loss occurred. If the vessel is insured for a higher limit than purchase price, regardless of survey value, a potential moral hazard has been created, as the insured could potentially profit from a loss.

Most clients do not enter into insurance agreements with the intent to make a profit. Through a combined effort between the insured and agent at each renewal, an accurate value of the boat should be set. Some boats maintain their value better than others and some depreciate as quickly as new cars. Surveyors countrywide value vessels differently, therefore, it can be smart to use several references when making the determination of value.

During the economic downturn, many clients wanted to reduce the value of their vessel to their loan amount, in an effort to save premium dollars. However, by underinsuring the hull value, the boat owner’s investment is not fully protected for a total loss, and the insurance carrier does not collect enough premiums to pay the most common partial losses. Therefore, many insurance carriers have reinstituted the 80/20 rule, meaning the client must insure the boat for 20% over the loan amount in order to have a minimal vested interest at the time of the loss.

Let’s next consider due diligence when it comes to securing boats. We will all pay for Sandy, loss or no loss, East Coast, West Coast, Gulf and Great Lakes, in increased premiums. What I saw in the harbors days before Sandy really surprised me. While the responsible boat owners were out securing and lashing – doing everything physically possible to make the boats safe, there were noticeably too many other boat owners who did not even come down to the marina. Granted, even those hauled ashore suffered, as Sandy was much more of a water event than a wind event. But, not to make an effort to secure your boat is unacceptable. The boats that were not secured for the storm were the ones breaking loose and bearing down on the others, and due to an act of God clause, they were not responsible for their own actions. Each boat owner had to pay out on their own policy, and swallow their deductible. To make matters worse, many took advantage of this as a way to get out from underneath their overvalued vessel in a tough resale market.

Moving forward? The topics of valuation and due diligence need to be understood and talked about. With some changes and attention, rates should stabilize going forward.

 

Dawn M. Speros is a twenty-five year veteran of the marine insurance industry and a Senior Yacht Insurance Specialist at Gowrie Group. Dawn leads Gowrie’s relationship with YBAA and was appointed to YBAA’s Advisory Board in 2011 as the head of YBAA’s Insurance Task Force. Dawn operates out of Gowrie’s Newport, RI office. You can reach Dawn at dawns@gowrie.com or 401.848.0200.

Gowrie Group specializes in customized marine, business, home, auto, equine, and boat insurance products and services. Gowrie Group is the largest independent marine insurance group in the US and is ranked in the top 75 independent insurance agencies in the US. Gowrie's 140 dedicated professionals are primarily located in the company's main offices in Westbrook CT, Darien CT, North Kingstown RI, and Newport RI.   For more information visit www.gowrie.com or call 800.262.8911.

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