Credit where credit is due

In order to encourage a healthier safety culture in the superyacht industry, is there a need to recognise when crew professionalism minimises risk, beyond giving them a pay rise? We explore whether or not superyacht insurance premiums could be lowered to reward an operational safety level that surpasses minimum standards.

At an exclusive round-table event at London’s Coq d’Argent, TSR sat down with representatives from Hiscox MGA, Viking Recruitment, Shipowners’ P&I and MAST to discuss whether it is possible, today and in future, to reduce superyacht insurance premiums by bolstering the professionalism of the on-board crew.

“Within the context of manning and crew professionalism, it is the owner’s – and by deferral the captain’s and manger’s – responsibility to ensure the vessel is manned properly and, therefore, seaworthy,” explained Paul Miller, director of marine underwriting at Hiscox MGA. “But, and I am the first to be vocal about it, the bar is far too low for the STCW and people need to accept that. The bar was only begrudgingly accepted in the first place, but people are starting to believe that it is not enough for the standards expected today.”

It would be wrong to claim that a minimum safety standard culture pervades all of superyachting because there are, undoubtedly, a number of well operated, well trained and highly professional vessels on the water. However, a number of superyachts and crew fall short of being professional – albeit having met the necessary standards and qualifications to work on board. Yet their insurance premiums will not be all that dissimilar to those that have much higher safety standards.

“If we are being completely honest about it, the STCW makes it relatively easy to get into the industry as a deckhand,” continues Miller. “Once you are on board, you are overpaid and this dilutes the market to the extent that if you are well qualified, then you get poached by another vessel. With the qualification level so low, it is near impossible to adjust premiums appropriately.”

Dieter Jaenicke, chairman and founder of  Viking Recruitment, summarises the problem as being twofold.  Without the industry effectively pursuing an adequate culture of training and safety, the internationally recognised standard of qualification has remained low. Additionally, he says, there has been no system in place to adequately praise those superyachts, individuals, teams and educators that have exceeded compliant qualification and standards.

“It is incredibly difficult, from an insurance perspective, for us to dictate how reductions in premium would function based on crew professionalism,” explains Nicola Kingman, syndicate manager – yachts at Shipowners’ P&I. “We know that there are certain companies that train crew to an excellent standard and there are those that don’t. But we don’t necessarily know, and can’t exhaustively prove, which companies these are. It would be unfair of us to award discounts based on incomplete information. Any changes to premiums would need to be based on an industry-wide consensus.”

The industry would need to establish a gold standard for training and certification for an insurance deduction system based on crew qualification to work, and this system would have to go above and beyond merely increasing the minimum compliant standard. Much like the ISO 9001, which is a quality management system that covers facilities, people, training, services and equipment, there would need to be an internationally recognised gold standard for the companies and individuals that meet the expectations of the superyacht industry.

However, regardless of any gold standard, the transient nature of super-yachting makes equating crew qualifications with superyacht insurance premiums near impossible. How can any system that is put in place account for high crew turnover?

On average, we carry out independent surveys of the superyachts on our books every three years or so,” says Miller. “Although we insure hull and machinery, we aren’t looking at hull thickness; we are looking at how the boat is run. Can the captain communicate effectively with the crew? How often do they practise man-overboard procedures? We try to provide the owner with an independent review that allows them to know whether or not we feel they are taking their family and friends on board a safe yacht.

Miller explains that while most surveys take place every three years, they will conduct more regular inspections if the superyacht is being run as an effective business and chartering frequently, or if the vessel has high crew turnover. High crew turnover is, according to Miller, a red flag and implies there is something amiss with the boat. But a red flag does not necessarily mean that the vessel will not get insured.

“As part of our risk management, we score the boats internally and provide categories of recommendation,” continues Miller. “If the vessel is level one, it amounts to ‘We aren’t leaving until you rectify this’. Level two allows 30 days to rectify. Level three provides 60 days. There is an element of flexibility to this depending on, for example, refit schedules.”

A world in which superyacht insurance premiums could be positively affected by crew professionalism and retention would be idyllic. Yet, such a system is unfeasible within the context of the superyacht market’s current insurance climate. At present, the insurance market is over capacity, and rates have reached an unsustainably low mark.

“Over the past 10 years or so, insurance companies have become more and more attracted to the yacht industry,” says Kingman. “It is the only one of the marine industries that is consistently having new vessels built and that is thriving when compared to the commercial shipping industry, which is struggling in today’s economy.”

Kingman and Miller both paint a picture of insurance markets – one hull and machinery and the other protection and indemnity – that have been hit hard by competition and market pressure.

“It has got to the point where it is no longer sustainable,” Miller says. “People aren’t making money; they are losing money. In the past five years, superyacht insurance premiums have almost halved. Coverage is as broad and all-encompassing as it can possibly be and there are a lot of claims. Eventually, companies will begin to withdraw from the market, at which point there will be fewer players and we should start to see some adjustment.”

For a superyacht valued at €20 million, the average annual premium for hull and machinery is around €60,000, for a €50 million vessel it is around €125,000 and for a €100 million vessel it is nearer to €200,000. Given that an individual soft furnishing on board can cost tens of thousands of euros, it is easy to see how premiums have become unsustainably low for insurers.

How, then, can we entertain the thought of lowering superyacht premiums as a result of bolstered crew professionalism? One solution may be to go in the other direction and increase premiums for vessels that have high crew turnover or that claim frequently. But with the insurance market as it is, if one insurer decides to increase premiums, for legitimate reasons or not, the superyacht owner will have no problem going to another insurer who will be happy to offer a lower rate. The market itself needs adjusting before any hypothetical notion of amending insurance premiums based on the rewards of bolstering crew professionalism can come to fruition.

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