Insurance & Risk Professional: How would you rate the health of the pleasure craft market?
Christopher Lotz: The Australian market has faced many challenges, with catastrophes, price volatility and falling vessel values causing difficulties for insurers. However, we think the market has stabilised and niches are opening up.
New entrants, including AIG, are bringing their international experience to the Australian market precisely for this reason – we see new potential here. At AIG, we focus on high-net-worth clients with motor and sailing yachts, and we see a large difference between what our target clients could buy internationally and what they could buy locally.
The pleasure craft insurance market depends on a growing economy creating new wealth, great and small. Australia’s potential here is great, not just in traditional resource businesses but also the new e-commerce and digital service companies, which dominate the BRW Young Rich List.
Australian demographics also play a large part – the median age of Australian boat owners and enthusiasts is between 40 and 50 years of age, a cohort who have spent some time accumulating their wealth and are at an age where they can enjoy it.
Last year was the first time since the GFC that the number of super yachts being built grew.
Early indicators such as boat license statistics suggest further opportunities with future generations as well. Australia already has one of the world’s highest boat-owners-per-capita ratio, and as household wealth increases we expect to see those 85% of Australians living less than 50km from the coast get more even more involved in boating.
IRP: The super yacht class has been getting a lot of attention recently. What is the growth of this sector expected to be?
CL: The super yacht market is a global market, one in which Australia is a valued participant both commercially and in terms of super yacht owners. The market suffered significantly from the global financial crisis with the number of new orders shrinking and the value of the existing fleet eroding.
It has taken some time for the energy to come back, but in recent years things have started to pick up again. In fact, last year was the first time since the GFC that the number of super yachts being built grew, according to the Showboats International Global Order Book. And, crucially in my view, this year the number of second-hand yachts sold outweighed the number of yachts put on the market.
As economic conditions have improved, owners are finally able to sell their current yachts, with many looking to upgrade to even larger ones. This is a trend the market is seeing in the average yacht length statistics, and a trend we have seen with our own Australian clients.
With the volume of new wealth created in the last decade distributed across Asia – including Australia – we expect a significant percentage of the new orders placed to come from our neighborhood.
IRP: Globally, there appears to have been a softening of rates. How much has this been the case in Australia?
CL: The global softening of rates has indeed hit the yacht insurance market, with more capacity available for very large yachts and catastrophe accumulation.
However in Australia, the softening of pleasure craft rates has now hit a split – safer, less complicated risks rates still remain at historic lows, but for more complicated or adventurous risks (such
as blue water, charter yachts, swing moorings, racing yachts, etc) the rates have in many cases started to rise as underwriters seek more sustainable combined ratios. However, high-net-worth clients and the “emerging” wealthy look closely at coverage and expect products that are tailored to their needs, so naturally they less often choose the lowest-priced product.
While softening rates can be a challenge for us insurers, it also represents a great opportunity. Clients can now buy the best coverage in the market at the most affordable rates offered for a long time. If we stay focused on our customers, insurers can lead the way in providing the insurance risk management solutions they need and expect from us.
IRP: Marine brokers are said to be becoming more comfortable with transacting business online. How are you planning to use technology in the coming year?
CL: The potential of transacting business online is a huge opportunity, and I am personally excited about the potential digital technology holds for connecting clients with their insurers quickly and responsively. And digitisation does not necessarily mean commoditisation.
AIG has demonstrated with our broker-facing yacht system in the US that tremendous value is created especially when products are complex, difficult to transact, and require specialised information and knowledge. I believe transacting online is about facilitating better communication, which is critical to underwriting. In the year ahead we look forward to scaling up that US experience for our Australian partner brokers, as well as laying the foundation for further improvements in our customers’ experience.
IRP: What are the biggest opportunities in the year ahead?
CL: AIG launched Private Client Yacht in Australia to fill a specific unmet need – provide a super yacht level insurance solution on Australian paper. However, you don’t need to own a super yacht to expect quality protection – and we think this creates the biggest opportunity.
There is a large segment of Australian boat owners who have not adjusted their level of insurance cover as they have upgraded their yachts. This is where brokers add great value for their clients; 50-, 60-, 70-foot yachts, sail and motor, require significant investments of time and money. We partner with our brokers to help their clients ensure that their insurance solution is in keeping with the value of that investment.
Brokers have these clients’ businesses on their books but often not their yachts, so we look forward to working with them to cement those relationships. After all, every boat owner loves talking about his or her boat, so we want to help our brokers be confident protecting their client’s prized asset.
IRP: What do you see as the biggest challenges?
CL: We see our biggest challenge as the flip side of our biggest opportunity – making it easier, more effective and more efficient for our brokers to convert and serve their clients with an advanced risk management and insurance offering.
This integrates many of the things mentioned previously – technological advancement to better serve and communicate with our brokers, a commitment to sustainable pricing with a focus on underwriting risks, and delivering on the promise to provide a super yacht quality solution for each client.
We operate in a market dominated by a few big brands, so part of this challenge will be both raising awareness of our value proposition with brokers and then helping them to better serve their clients who have outgrown their current insurance and need a better solution.
Opportunities are wrapped up in challenges – we look forward to working with our partners this year to improve their client relationships and better protect more yacht owners.