The mystery surrounding the sinking of "MY YOGI" might hold some clues and help put things in to perspective. "MY YOGI" was in a league of her own. She was almost brand new, in ABS class, 60 metres in length and valued at USD$39m! She was one of the most technically advanced superyachts in the world, so how did she sink?
Why did she continue sailing in force 8 winds (up to 74kph), despite weather warnings? Why was she sailing at almost top speed in these conditions? Why was the yacht allowed to turn her stern to the seas? What about the redundant pumping systems onboard? How could such a new, sophisticated vessel with 8 watertight compartments become a total loss? Many unanswered questions remain.
The total gross written premium (GWP) for marine insurance at Lloyd's of London in 2018 was USD$2.6b. This sounds like an enormous amount of money, but when we factor in just a few more events within a 24 month period, you will see why everyone's premiums are on the rise.
At 0200 hours on Friday 14th of September 2018 a fire broke out in a 121m floating dry dock at the Lürssen shipyard in Bremen, Germany. The fire also affected a yacht within the dock. More than 110 firefighters attended the scene, thankfully, nobody was injured. Facts remain vague. It is rumoured the fire destroyed a new build known as "Project Sassi" which was a 110m vessel almost ready for delivery. Lloyd's List Maritime Intelligence said; "Blaze at Germany's Lürssen shipyard, could be the largest pure hull loss ever". They estimate the claim to come in at over USD$700m!
In 2017 the US & Caribbean was battered with an accumulation of storms which was to become one of the worst weather events in history. Hurricanes Harvey, Irma & Maria made 2017 go down as the most expensive hurricane season on record, with insurance losses, estimated to be in excess of USD$70b! We don't have an accurate split between marine & non-marine, but if only 10% of this relates to marine risks (it is likely much, much more); this represents over USD$7b!
With JUST these few events, we can see that the losses are more than 3x the entire annual premium pool for marine insurance at Lloyd's. There are many factors at play, most for another time and another article. What we do know, is that since these events and significant losses a considerable amount of capacity and security has withdrawn from Lloyd's. Those that remained, scrutinised their business models, their losses and their procedures to try and find a way to survive. Underwriters were made to provide new and improved business plans with more robust rates and measures to ensure they could weather the storm, pull through these turbulent times and promise to turn a profit.
As a result, the free flowing capacity that had flooded the industry disappeared and the ones that have authority to continue on, proceed more cautiously, carefully and determined to write the right risks, at the right price to survive another season.
This is why insurance premiums are on the rise.
So what happen's next? Will premiums continue up and up until nobody can afford to pay? Will the profiteers see another opportunity and sneak back in to take another slice? After 25 years in this industry, my hope is that we all learn from these losses, we improve the process, we support the vessel and business owners that take risk management seriously and do all they can to protect themselves. We must all value the clients that appreciate the support, the solace and the backup that the right insurance solution provides. With the right processes in place, as an industry, we must strive to deliver the right solutions for the right premium that will respond as expected when our clients need us most.
We advise our clients to take the time to assess, understand and minimise events that could threaten their operation. It could save their business, and maybe even some premium.