Insurance, what can you afford to lose?

[bill99]

A few years ago I lost a Bendytoy 430 on a trip from Fiji to NZ. There is a long story to it, and I won't bore you with the details.
I had the boat insured for 240k NZ$ with a premium of $3500 NZ$.
I asked for a high excess to get a lower premium. Excess 12k.
The insurer, Club Marine, after doing their investigation over a 6 week period, paid into my bank account 228k NZ$
I learnt two things from that.
1. Never go offshore with a spade rudder, without a spare bolt on the back emergency rudder.
2. I was really happy I was insured.

[belizesailor]

Originally Posted by Simi 60

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.

Yeah, your driving skills wount save you from all the bone heads on the road out there...or a moments inattention. Ive been slammed by drunk drivers and day dreaming drivers...pro level driving skills could not have evaded those accidents.

[rourkeh]

Our perception that by purchasing insurance for our boat we can sleep easy knowing our boat is safe, even if the premiums seem like a lot for this piece of mind. The reality is quite different. I am looking at insurance for a boat I wish to buy. Cost of vessel $250,000. Premium per year $8,000. I have a LOT of experience with ownership / operation of vessels up to 100' and have never had a claim. When I examine the coverage of the typical policy I am covered for total loss up to $250k as long as the vessel is determined to be "sea worthy", and I followed all the dictates of the policy. OK so far. But if I have a partial loss like a fire, collision, damage due to inclement weather etc and I claim say $60,000 in damage the insurance company will examine the lost or damaged items, their age and condition and depreciate them for current value. Not new for old. So if I lose my electronics and furnishings in a fire and they are in perfect working order and good condition I might get a check for $30,000 to cover the $60k loss. I have to pay the other $30,000 to put the boat right. Not such a great deal, and I have been paying them $8,000 a year for the privilege. When you break down the terms of most policies you are really paying a huge premium for the worst case scenario and hoping for the best. It is not such a great deal when you read the fine print, unless you own the insurance company.

[belizesailor]

Originally Posted by rourkeh

Our perception that by purchasing insurance for our boat we can sleep easy knowing our boat is safe, even if the premiums seem like a lot for this piece of mind. The reality is quite different. I am looking at insurance for a boat I wish to buy. Cost of vessel $250,000. Premium per year $8,000. I have a LOT of experience with ownership / operation of vessels up to 100' and have never had a claim. When I examine the coverage of the typical policy I am covered for total loss up to $250k as long as the vessel is determined to be "sea worthy", and I followed all the dictates of the policy. OK so far. But if I have a partial loss like a fire, collision, damage due to inclement weather etc and I claim say $60,000 in damage the insurance company will examine the lost or damaged items, their age and condition and depreciate them for current value. Not new for old. So if I lose my electronics and furnishings in a fire and they are in perfect working order and good condition I might get a check for $30,000 to cover the $60k loss. I have to pay the other $30,000 to put the boat right. Not such a great deal, and I have been paying them $8,000 a year for the privilege. When you break down the terms of most policies you are really paying a huge premium for the worst case scenario and hoping for the best. It is not such a great deal when you read the fine print, unless you own the insurance company.

Ouch! Damn, thats like a mortgage payment at 3.2%! Maybe thats the new model, basically make a mortgage payment to them.

Yes, most policies will prorate damage based on age. So for an older boat, they are not gonna pay jack...a total loss is better. This is one reason I decided to go to liability only on my now 18 year old boat. Over decades of boating, Ive never had a loss or claim. I think a total loss in my case is unlikely (possible of course, but not likely). Significant damage, like a lightening strike, is much more likely. Given that they aren't gonna pay jack in that event, I would just be paying a high premium for an unlikely total loss that I could absorb...your $250K budget would be more painful...one reason Ive never been able to bring myself to buy a more expensive boat...I prefer losses I can walk away from.

Full coverage may make more sense on a new boat, but you can also reduce premium cost by under insuring at whatever level you are comfortable with. Along those lines, it would be interesting to see if any insurers write catastrophic loss only converage (as is available for healthcare). It makes no sense to pay $8K per year to be covered for damages that are less than about 20% of boat value, just put the premium in the bank for that, but would be nice to be covered for big damage or total loss.

Pre the recent massive hurricane losses nationality of boat/owner made a big difference too, with USA based boats/owners having substantially higher premiums and some Eruo based boats being much lower. Dont know if that still holds true.

[SpinDreams]

Reading with interest, just had my insurance policy go up by 25% with no claims due to "an increase in underwriters’ premium rate following last year’s losses in Europe and the Caribbean.". So I am looking for some suggestions on alternative insurance providers in Europe who can insure my 42ft Bavaria Cruiser moored permanently in Sardinia.

No one has mentioned any insurance companies in this tread, I am happy to receive suggestions by PM if you don't want to advertise them here. Happy to go for third-party only insurance as the boat is fully paid for and only 75k when I bought it last year.

[WanderingStar39]

Originally Posted by Simi 60

Have you ran the numbers?
In oz, for us at least, 3rd party liability insurance on the car is only dollars cheaper than full comp.

Gotta get rid of the car, only drove it twice this year, far cheaper to uber and or rent one.

I still live in a house, in a suburb, where a car is quite useful. The book value on the car is less than any significant accident damage, perhaps $2-3k. If it's destroyed tomorrow I'll buy another the next day.

[Pete17C]

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!

How many claims did you make?

If you didn't make any the insurance co got all your money, and paid nothing. Seems like you could have come out ahead at any point.

If you went 11 years without a claim, you could have bought another boat.

[mglonnro]

Originally Posted by Pete17C

How many claims did you make?

If you didn't make any the insurance co got all your money, and paid nothing. Seems like you could have come out ahead at any point.

If you went 11 years without a claim, you could have bought another boat.

Yes but but!

The post I was commenting said if you can take the hit so I assumed it meant a total loss of the boat. Of course if nothing happens I come out ahead without insurance at any point, yes!

And as I calculate with 0.9% premium I have to go 111 years without a claim to buy a new boat. (Only trouble here is that after 111 years "we don't need any roads" and everything is just foiling all over the place and totally autonomously computer operated. But I love my memories of it all!)

[Mike OReilly]

Originally Posted by valhalla360

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.

Yes, this is the power of pooled risk — which is exactly what insurance is (or at least was) supposed to be. It’s the same collective approach we see with fire departments or police services; we pool our resources to pay for something that mitigates risk for everyone in the pool.

Insurance is yet another example, and ignoring the market distortions of mandatory insurance and functional monopolies, it works pretty well to price this mitigation of risk at a fairly low level. But this doesn’t change the risk reality of each individual boater. It just provides a means of mitigating that risk.

I don’t understand how whether one can afford the hit makes any difference. Risk is risk. And the cost of being one of the unlucky ones is the same, whether you can afford the loss of your boat, or not. This only factors into the cost-benefit analysis of insurance; if you can’t afford the hit, then this weights this analysis to accepting a higher price for insurance.

It’s still the same risk for the boater. And as I keep saying, the likelihood of a serious event happening to a cruising level boat is very small. But as you rightly point out, the impact of this possible event is dependent on each person’s ability to ‘absorb the hit.’

This is why we must all look critically at our own situations. I’m not saying all insurance is a waste, but too often (and to get back to the OP) people seem to take on insurance without much thought.

[belizesailor]

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!

However, rates have sky rocketed for many since the disasterous loses in the E Carib.

When and where were you paying 0.9%? World cruising or just local (way cheaper)?

[Mike OReilly]

Originally Posted by belizesailor

However, rates have sky rocketed for many since the disasterous loses in the E Carib.

When and where were you paying 0.9%? World cruising or just local (way cheaper)?

In the survey I ran about 1.5 years ago here, the average rate was just shy of 2% and the median was about 1.5%. There was a range going from 0.3% all the way to more than 6%.

This was before the latest hurricane hits on the Caribbean and the Gulf of Mexico. I wonder what the range of rates are today...

[Pete17C]

Originally Posted by mglonnro

Yes but but!

The post I was commenting said if you can take the hit so I assumed it meant a total loss of the boat. Of course if nothing happens I come out ahead without insurance at any point, yes!

And as I calculate with 0.9% premium I have to go 111 years without a claim to buy a new boat. (Only trouble here is that after 111 years "we don't need any roads" and everything is just foiling all over the place and totally autonomously computer operated. But I love my memories of it all!)

675€/yr seems low for full coverage (I was told there would be no math)

[mglonnro]

Originally Posted by belizesailor

However, rates have sky rocketed for many since the disasterous loses in the E Carib.

When and where were you paying 0.9%? World cruising or just local (way cheaper)?

This was 2015 and the area was the Baltic.

Interestingly enough, I got the same 0.9% for our new boat now a couple of weeks ago with a much larger cruising area including the North Sea/North Atlantic all the way to Iceland.

[hellosailor]

"I would have paid $144,000 in insurance payments over my accident free driving lifetime. That's several completely new cars I could have destroyed and bought for other drivers for the same money."
Maybe we should band the word "insurance" unless used with an appropriate and specific modifier before it?
You blow a tire on the highway because you just hit part of the muffler that fell off some car in front of you. Not your fault. But your car swerves, hits the median, jumps the barrier, and you kill the parents and injure their two kids in the back of an oncoming car.
You may find yourself held liable for the kids medical bills, their pain and suffering, the car (average price over $30k in the US now), and oh yes, some $3-5 million dollars PER PARENT for the lifetime value of their earnings and parenting skills.
A fast ten million in one shot, and that judgment can be active for twenty years. Maybe paying a grand or two per year to insure against that doesn't seem so unreasonable, if you have a house, spouse, kids of your own that you might want to take care of. If you don't mind telling the spouse "We're downsizing" and the kids "You're on your own" and you can take the bus to work, ok, the insurance is not so valuable.
With a boat? The liability issues are the same. (Think about the Marlins pitcher? Who ran is go-fast boat up on a breakwater a year or two ago, middle of the night, killed himself and two passengers, facts still being debated.) The hull insurance, the insurance against environmental issues and wreck removal, all of that will assuredly be way less than the liability, and if not affordable, well, at least just a heavy hit--rather than a total cleanout.
Some folks can afford to write a check. Others don't care...and arguably should be sent to China, where the average healthy body can be sold for $200K in parts. And another $20k if there's a good passport to be sold along with them.
Like they say a the poker table, you've got to pay to play.

[mglonnro]

Originally Posted by Pete17C

675€/yr seems low for full coverage (I was told there would be no math)

As belizesailor said, the sailing area is a big factor. And looking at Mike's survey results it seems there has to be a lot of other factors as well.

Math is your friend!