Insurance, what can you afford to lose?

[Metal Boat]

I am suprised that no one has mentioned experience in this discussion? I am more than happy with 3 party only on my vehicle because I am confident of my driving skills. I am looking hard to buy a yacht and I will most definately insure comprehensive at first because of my lack of experience and my fear of harming someone else in marinas etc. Once I have some experience and confidence I will probably drop to liability only. For the other guy from AUS who said that over 49' requires wreck/recovery insurance is this a state requirement and is it in all states?

[valhalla360]

Originally Posted by Mike OReilly

Absolutely works on fear. And no, in the vast majority of situations looking at cruising-style boats, the fear is irrational.

I’ve participated in this discussion many times here on CF. I’ve always advocated for a rational risk assessment approach to insurance. But it seems that many people fail to appreciate what risk actually is. Risk is proportional to the likelihood of an event happening AND the impact of said event.

Risk ∝ Likelihood of event X Impact of event

R ∝ L x I

As either I or L go to zero, the Risk goes to zero. But in the case of cruising boats, most people focus on the I side, and ignore the L side. This is where the "insure if you can't afford to lose the boat” idea comes from. This is absolutely driven by fear which is stoked by advertising, by the media, and by our culture in general.

The fact is that the Likelihood of a cruising level boat suffering any significant damage is exceedingly low. This is borne out by publicly available data which anyone can look at (and which I’ve posted on CF many times). Therefore Risk is generally low for most of us.

We all have different levels of risk tolerance. And some of us are engaged in riskier cruising styles. This is why we all must make our own assessment. But it’s hard to make these decisions completely rationally, especially when all the messaging around us is focused on stoking our fears.

Actually a LOW likelihood and HIGH impact is what Insurance really is for.

If there is a high likelihood, you are likely going to pay regardless but the insurance will have to cover the cost of administration plus profit.
- Think vision insurance...you know you are going to have an eye exam and are going to get glasses each year...not much else is typically covered...so why pay an insurance company to cover it with lots of complications at a higher price?

If there is a low likelihood, you only pay for the average payout (plus a percentage for admin/profit)...which should be drastically less than the loss.
- Think of an insurance company pooling your $500k boat with 100 others and they expect an average of 1% will be totaled per year...Likely the fee will be around $6k/yr ($5k = 1% plus a bit for administration and profit). Of course if you get lucky, it's sounds like a bad deal but if you win the 1% lottery, it's likely the difference between a nuisance and a major life change.

PS: those saying they are a low risk ignore the fact, there are other idiots who can easily damage your boat and many of them don't carry insurance and don't have sufficient assets even if you win a court case.

[JPA Cate]

Hello, everyone, just chiming in briefly. Insurance for doublehanders was not available when Jim and I left the US the second time. It WAS a long time ago.

For many years, maybe 25, we traveled without ANY insurance whatsoever, unusual for Yanks, of course, but due to circumstance. More recently we have acquired the required liability insurance to protect marinas and haul out facilities. What I think is utterly ludicrous about this is that they require a survey!

We invested, during those years gone by, in things to make us safe: GPS, a Trimble we took delivery of just before the first Gulf War, radar, chain, anchors, and the ilk. Expenses we viewed as largeish at the time, but for increased protection against loss.

Dale, it did feel sort of naked at first, but really, nude isn't so bad, ya know? In your situation, your risk is minimized by both your attention to avoidance, and by a fair wee bit of experience. Liability only should not be too hard to find. I tend to view hull insurance as a luxury: and there are preventive measures you can take according to which risks grab you more.

Ann

PS. In our case, if the boat sunk, we'd probably go down with it, trying to keep it afloat! Mind you, insurance would be irrelevant.

[Mike OReilly]

Originally Posted by JPA Cate

...We invested, during those years gone by, in things to make us safe: GPS, a Trimble we took delivery of just before the first Gulf War, radar, chain, anchors, and the ilk. Expenses we viewed as largeish at the time, but for increased protection against loss. ...

That’s another good point. In addition to a risk assessment, we all must make a cost-benefit analysis with all expenditures. Unless money is an unlimited resource, one has to make choices about how best to spend it. It’s not hard to see that money spent on insurance could easily go to things that would make a far greater impact on safety and security.

Originally Posted by valhalla360

Actually a LOW likelihood and HIGH impact is what Insurance really is for.

We all have to make our own assessment. The fact remains that the odds of having a serious mishap on a cruising style boat is low — exceedingly low. It is far less likely than say driving, or even walking down a busy street. But as you say, it’s certainly not zero, so the risk is not zero.

Originally Posted by valhalla360

PS: those saying they are a low risk ignore the fact, there are other idiots who can easily damage your boat and many of them don't carry insurance and don't have sufficient assets even if you win a court case.

The stats include this factor, so it doesn’t change the basic risk assessment. The stats are clear. The likelihood of a cruising level boat being involved in a reportable accident is exceedingly low.

But if you assess that your risk of being damaged by someone who is unable to 'make you whole' is significant, then you should buy the appropriate insurance (or better still, do your best to stay away from those you deem idiots). In fact, all comprehensive insurance plans I’ve seen include coverage for uninsured boaters.

[valhalla360]

Originally Posted by Mike OReilly

We all have to make our own assessment. The fact remains that the odds of having a serious mishap on a cruising style boat is low — exceedingly low. It is far less likely than say driving, or even walking down a busy street. But as you say, it’s certainly not zero, so the risk is not zero.

While I agree, each individual should make the assessment on their own...I think you missed the point.

It's rare for a house to burn to the ground...but if it happens, most people will struggle to recover from the financial hit (similar for an expensive boat). But because it's rare, the insurance company can average it out over a large pool, so at least in theory, you only pay proportional to the risk (ie: the formula you provided). Insurance companies have already factored in how rare it is to have a claim on a cruising sailboat.

If you can afford the hit, you will in the long run almost always come out ahead self insuring (ie: no insurance) as the insurance company has to add administrative and profit costs (they aren't a charity) on top of the payouts.

This is where the assessment comes in. Just sold a $4k truck where we were carrying the minimum...why? While it would annoy me, we can write a check for another $4k truck tomorrow with no significant impact to our overall financial position. On the other hand losing a $150k boat...while it wouldn't break us...it would be a major financial setback and we would likely have to work an extra year or two to make up the difference.

[Simi 60]

Originally Posted by Metal Boat

I am suprised that no one has mentioned experience in this discussion? I am more than happy with 3 party only on my vehicle because I am confident of my driving skills

I had a car written off when by a guy who ended up being pissed, ran a red light and turned in front of me many years ago.
My driving skills were good enough that I avoided injury to myself.
I was glad I had insurance because he didn't.

[mglonnro]

Originally Posted by valhalla360

If you can afford the hit, you will in the long run almost always come out ahead self insuring (ie: no insurance) as the insurance company has to add administrative and profit costs (they aren't a charity) on top of the payouts.

I don't really get this? I checked my old insurance papers and I was paying a 0.9% yearly fee for a 20+ years old boat valued at 75,000€. The long run must be VERY long for self insuring to come out ahead here!

[valhalla360]

Originally Posted by mglonnro

I don't really get this? I checked my old insurance papers and I was paying a 0.9% yearly fee for a 20+ years old boat valued at 75,000€. The long run must be VERY long for self insuring to come out ahead here!

Yes, given those numbers it likely is a very long time (probably a bit over 100ys).

That's the point though...as an individual, you may not be able to average it out over your lifetime.
- For small hits, that you can absorb, it's a good risk. Most (but not all) of the time, you will come out ahead self insuring.
- For big hits, that you can't comfortably absorb, it quickly becomes a questionable risk to self insure because if you happen to be unlucky....

Insurance companies on the other hand are built on having a large pool so that over a reasonably short period of time, their payouts mirror the risk. Sometimes they get it wrong (hence why you see prices jump after a major event) but usually they have a pretty good handle on it.

It also gets messy because insurance is a regulated industry, so they can't always get approval for rare major events like a hurricane...until after one happens and they can prove the losses to the regulatory body.

[mglonnro]

valhalla360, yes, true.

And we're lucky to not have any hurricanes (or earthquakes or other natural disaster events) over here.

What also makes it easier for insurance companies to evaluate risk is, I think, our culture with its background deeply rooted in social democratic ideas. It's, for example, almost the norm to be a member of a sailing club if you own a boat. The clubs, then, are very focused on the safety side of it all, and we have mandatory yearly boat inspections (surveys) carried out by certified club members.

[daletournier]

Originally Posted by Metal Boat

I am suprised that no one has mentioned experience in this discussion? I am more than happy with 3 party only on my vehicle because I am confident of my driving skills. I am looking hard to buy a yacht and I will most definately insure comprehensive at first because of my lack of experience and my fear of harming someone else in marinas etc. Once I have some experience and confidence I will probably drop to liability only. For the other guy from AUS who said that over 49' requires wreck/recovery insurance is this a state requirement and is it in all states?

I think there's truth to this. Not all boats and all sailors are equal.

There's quite abit one can control ie anchor size, rigging age, through hulls, well maintained boat with good wiring, batteries fused properly etc etc, combine this with a conservative nature you surely increase the odds in your favor. Also looking at one's track record.

Sailors approach things differently. I'm currently in a place that has a notorious bar crossing. I will not cross a bar unless it's the last couple of hours of a flood tide, yet others come in here on run out tides, these choices imo matter.

It's the uncontrollable events that present challenges, hitting something at sea, rare but happens. The biggest risk I see is other boats. There's a guy here at the moment, he's a disaster, should not be allowed on the water, last saw him getting towed in with ripped sails and no engine due to not looking at weather forecasts and just having a "she'll be right attitude", a modern boat that is an absolute disgrace condition wise. There's many stories known about him. He's anchored next to me and I'm leaving the boat for three weeks!! I see other boats including tourist boats as the main threat.

BTW, good discussion, some people I respect are making some good points.

Cheers.

[valhalla360]

Originally Posted by mglonnro

valhalla360, yes, true.

And we're lucky to not have any hurricanes (or earthquakes or other natural disaster events) over here.

What also makes it easier for insurance companies to evaluate risk is, I think, our culture with its background deeply rooted in social democratic ideas. It's, for example, almost the norm to be a member of a sailing club if you own a boat. The clubs, then, are very focused on the safety side of it all, and we have mandatory yearly boat inspections (surveys) carried out by certified club members.

I doubt the political background has much impact.

It's more complicated but in simple terms actuaries simply add up the payouts for a particular pool of insured people and then divide that amount out by the number of people in the pool to come up with the premium (plus administration & profit of course).

Not sure about Finland but in the USA, they will give you a discount if you take a safety course or have other factors that make you a lower risk. If those safety courses and inspections are mandatory in Finland, you probably never see them but they are baked into the underlying numbers (if they actually reduce payouts)

[daletournier]

Originally Posted by JPA Cate

Hello, everyone, just chiming in briefly. Insurance for doublehanders was not available when Jim and I left the US the second time. It WAS a long time ago.

For many years, maybe 25, we traveled without ANY insurance whatsoever, unusual for Yanks, of course, but due to circumstance. More recently we have acquired the required liability insurance to protect marinas and haul out facilities. What I think is utterly ludicrous about this is that they require a survey!

We invested, during those years gone by, in things to make us safe: GPS, a Trimble we took delivery of just before the first Gulf War, radar, chain, anchors, and the ilk. Expenses we viewed as largeish at the time, but for increased protection against loss.

Dale, it did feel sort of naked at first, but really, nude isn't so bad, ya know? In your situation, your risk is minimized by both your attention to avoidance, and by a fair wee bit of experience. Liability only should not be too hard to find. I tend to view hull insurance as a luxury: and there are preventive measures you can take according to which risks grab you more.

Ann

PS. In our case, if the boat sunk, we'd probably go down with it, trying to keep it afloat! Mind you, insurance would be irrelevant.

Thanks for your input Ann, always interested in what you and Jim have to say..... points on the board.

[mglonnro]

Originally Posted by valhalla360

I doubt the political background has much impact.

It's more complicated but in simple terms actuaries simply add up the payouts for a particular pool of insured people and then divide that amount out by the number of people in the pool to come up with the premium (plus administration & profit of course).

Not sure about Finland but in the USA, they will give you a discount if you take a safety course or have other factors that make you a lower risk. If those safety courses and inspections are mandatory in Finland, you probably never see them but they are baked into the underlying numbers (if they actually reduce payouts)

Yes, we do see the discounts (or assume they are there) because insurance providers base their fees on the boat being part of the yearly inspection scheme or not.

The inspections are voluntary and not required by the insurer (or the government). They have become a de facto norm, though, carried out by the local sailing clubs and recognized as relevant by other stakeholders.

Why I mentioned the political thing (can be called 'cultural' as well, if that's a better word) is that I think there are some aspects of our culture that push towards these kinds of self-organized social behaviours and norms, which might be less prominent in other places? MAYBE?

[Paul L]

Originally Posted by valhalla360

Actually a LOW likelihood and HIGH impact is what Insurance really is for.

If there is a high likelihood, you are likely going to pay regardless but the insurance will have to cover the cost of administration plus profit.
- Think vision insurance...you know you are going to have an eye exam and are going to get glasses each year...not much else is typically covered...so why pay an insurance company to cover it with lots of complications at a higher price?

If there is a low likelihood, you only pay for the average payout (plus a percentage for admin/profit)...which should be drastically less than the loss.
- Think of an insurance company pooling your $500k boat with 100 others and they expect an average of 1% will be totaled per year...Likely the fee will be around $6k/yr ($5k = 1% plus a bit for administration and profit). Of course if you get lucky, it's sounds like a bad deal but if you win the 1% lottery, it's likely the difference between a nuisance and a major life change.

PS: those saying they are a low risk ignore the fact, there are other idiots who can easily damage your boat and many of them don't carry insurance and don't have sufficient assets even if you win a court case.

Exactly, it is the high impact low risk items that I am insured against. It has nothing to do with fear marketing. It has to do with me paying someone to take some of the risks I don't want to take.
Saying that reportable events are exceedingly unlikely for cruising boats is covering a large number of boats. Cruising boats in some areas have somewhere north of exceedingly unlikely risk. For example the number of cruising boats hit by lightning in Central America is really pretty impressive. Each season there are a number of cruising boats lost while crossing tbe S Pacific. These are a much smaller cohorts than say the Eastern Carib, where the numbers of boats lost divided by the total number of boats might push the risk into the exceeedingly low range.

Experience helps to a point. When some boating catastophy is reported on Cruisers Forum the team piles on to explain what they did wrong (a sometimes usefull learning experience) and why this couldn't happen to me because I would never ______ fill in the blank. Experienced or not, it is often more honest to look at the event and say but by the grace of god go I.

[belizesailor]

Originally Posted by Metal Boat

I am suprised that no one has mentioned experience in this discussion? I am more than happy with 3 party only on my vehicle because I am confident of my driving skills. I am looking hard to buy a yacht and I will most definately insure comprehensive at first because of my lack of experience and my fear of harming someone else in marinas etc. Once I have some experience and confidence I will probably drop to liability only. For the other guy from AUS who said that over 49' requires wreck/recovery insurance is this a state requirement and is it in all states?

Ha, Im more than happy with liability only on my Jeep because its 29 years old!