MARKET PRACTICES

One particularly obnoxious practice is to infer that cover is being bought from a broker, whereas, in fact, that party – standing behind a well-marketed brand – is an underwriter’s agent. Another business model to be wary of is that the turncoat, where the intermediary acts as broker at the time of policy inception, but then acts as the underwriter’s claims handler when there’s a claim. The (legal) basis for this is often buried in the small print, but it’s of little help for the owner who, when needing to claim, is left without the guidance which might have been expected.

Another unhelpful practice is to divide up and repackage cover so as to appear to add value. For example, third party liability insurance typically covers injury claims from guests – but this doesn’t prevent some from selling guest welfare insurance separately as an add-on. Relative to Hull & Machinery, P&I cover is relatively inexpensive and normally already provides owners with mandatory international cover.

And – make no mistake – underwriters are there to turn a profit. They can, and will, challenge large claims, to a final and unappealable conclusion if necessary, in a legal process that can take years, with the insured incurring unrecoverable losses no matter the outcome. One trick is to pay smaller claims quickly and make a song-and-dance of doing so in their marketing materials, public relations and social media, giving the impression that all claims are handled in this way.

THE UNDERWRITER

Check carefully where the underwriter is based, and who’s regulating them. Should an underwriter become insolvent following a large claim, the owner would almost certainly be left high and dry. For this reason, underwriters based in the United Kingdom and European Union must maintain ‘solvency margins’, to ensure that their assets will cover their potential liabilities. Reinsurance provides further protection. Further afield, however, policyholders should consider just how much of a hit their underwriter could take. Given the expense of holding reserves, and with reinsurance typically accounting for a fair percentage of the premium, some underwriters could be tempted to cut corners.

THE BROKER

Given that they are paid on a commission basis, inherent potential conflicts of interest are tightly regulated in the UK by the Financial Conduct Authority (FCA). In particular, brokers must act honestly, fairly and in their clients' best interests – and communicate clearly, especially regarding fees and commission. Advice provided must be appropriate for the client and only suitable insurance, and level of cover, must be proposed.

GENERAL DUTIES

As well as regulatory duties, the law more generally requires brokers to exercise reasonable skill and care (with reference to what one would ordinarily expect from a member of that profession operating within the same market) – plus, there may be a specific contractual duty to source insurance of particular type or standard.

OBTAINING COVER

Brokers who hold themselves out as dealing or specialising in yacht insurance will owe the insured a duty of care to identify what insurance is needed. While not lawyers, they are expected to have a working knowledge of insurance law, be able to ask their client the right questions, and understand how any exclusion clauses may affect cover.

They are under a duty of care to warn the insured of the duty to make a fair presentation to the underwriter, and the separate requirement to disclose material facts. Brokers should also indicate what sort of matters could be considered to be material and ask questions about facts that they know are material but the insured might not think to mention.

They must also, when it comes to renewal, go through the same procedure that was carried out at the inception of the policy: they cannot just renew the policy and pick up their commission.

While brokers must do everything reasonably possible in order to obtain or renew cover, there is no absolute obligation to do so. Brokers must act with reasonable speed, and obtain multiple quotes, if possible, to make certain that the insured pays no more than necessary. The cover which is obtained must be clear, suitable and meet the insured’s requirements – and has been underwritten by a suitable underwriter(s).

ADVISING ON TERMS

Crucially for owners of large, permanently-crewed yachts, which are subject to a myriad of regulations, brokers must draw their clients’ attention to any onerous or unusual terms or conditions, so that owners have the opportunity to ensure that they are able to comply with such requirements or, if possible, obtain alternative cover.

CLAIMS HANDLING

Generally, unless agreed otherwise, brokers must assist clients with making claims. As ever, the broker must act with due skill, care and diligence. Notably (these are issues commonly leading to disputes) the broker must ensure that time limits and notification requirements are complied with. Time limits can be very tight. Policies can also require, for example, a sworn proof of loss to be provided. A whole strategy must be in place for handling claims.

OTHER INTERMEDIARIES

Do not assume that non-specialist intermediaries such as yacht managers will add value. Some may simply extend chains of communication, increasing the risk of non-payment for non-disclosure of a material fact, while paying the manager’s commission will only increase premiums. Acting as an unregulated intermediary in the UK is a serious criminal offence, carrying a maximum two-year prison term and an unlimited fine for the individuals involved. You can quickly check whether anyone doing so is regulated by looking them up on the FCA's Financial Services Register.

BE WARNED

Always look beyond the slick websites, social media advertising and event sponsorships, and be clear about the role played about the party(ies) you’re dealing with. Seek written confirmation if you’re in any doubt. Also pay attention to where they’re located, who’s regulating them, and the law and jurisdiction applicable to the policy.