Taking a proactive approach to super-yacht casualties

The sinking of the 56-metre super-yacht Bayesian off the coast of northern Sicily in August this year, which claimed the lives of seven people including British software entrepreneur Mike Lynch, is officially still under investigation.

But the incident and other casualties this year involving super-yacht fires, collisions and groundings, raise several questions for the super-yacht insurance market and the maritime emergency response service providers named on super-yacht insurance policies.

According to media reports, the yacht, which was carrying 22 people, went down and in just 16 minutes – a period during which the power failed and the GPS signal was lost – ended up 50 metres down on the seabed.

If the reporting of the facts is correct, the Bayesian appeared to have succumbed to a small and what should have been “manageable weather event”, particularly given super-yachts (yachts longer than 24 metres with a full-time captain and crew), more so than most vessels, are built to rigorous safety standards and equipped with advanced technologies designed to enable the captain and crew to steer clear of extreme weather conditions.

Lizzie Johns, Northcott Global Solutions

Lizzie Johns, director of insurance at Northcott Global Solutions, which provides emergency response, medical evacuation and duty of care services to the super-yacht and other industry sectors, says while it might appear the Bayesian succumbed to a manageable weather event, maritime environments can change rapidly and unpredictably.

Indeed, experts believe the Bayesian was hit by a rare meteorological phenomenon known as a downburst, a localised powerful wind from a thunderstorm that spreads rapidly after hitting the surface. This would explain why the Bayesian was the only one of many yachts anchored off that part of the Sicilian coast to sink in the storm that night.

“While safety and risk management systems are required for super-yachts under frameworks like the Standards of Training, Certification and Watchkeeping and the Large Yacht Code, these standards are not always uniformly followed”
_{Lizzie Johns
Northcott Global Solutions}

“A downburst, like the one suspected in this case, can produce extreme wind and sea conditions, overwhelming even modern yachts with rigorous safety standards. It’s important to recognise no matter how advanced the technology, human error, technical malfunctions or unexpected natural phenomena always pose a risk,” Johns adds.

This is particularly relevant because the storm that caused the Bayesian to sink was unnamed and therefore any losses suffered as a result are covered by the hull and machinery (H&M), protection and indemnity (P&I), and crew and passenger accident and health (A&H) insurance policies super-yachts are obliged to have in place. In the super-yacht insurance market, named windstorm cover is routinely excluded by many underwriters, with the option of buying it back in, according to Rupert Beckett, executive director of super-yacht insurance at broker Gallagher.

“At the very least, if a vessel is to remain in the hurricane zone during the season then a detailed and realistic hurricane plan would be subject to detailed scrutiny under most policies. We would normally expect vessels to be out of harm’s way before the hurricane arrives but, in some cases, this is not possible,” Beckett says.

Safety standards

According to Johns, the Maritime Labour Convention Act 2014 has significantly improved safety standards in the yachting sector, particularly with regards to crew training and repatriation rights. However, there is still room for improvement. “While safety and risk management systems are required for super-yachts under frameworks like the Standards of Training, Certification and Watchkeeping and the Large Yacht Code, these standards are not always uniformly followed,” she says.

Rupert Beckett, Gallagher

She believes the introduction more recently of crew resource management (CRM) protocols, borrowed from aviation, in the yachting industry is proving valuable in enhancing decision-making, communication, and teamwork among super-yacht crews. “While many companies provide high-quality safety training, the industry as a whole could benefit from more frequent and rigorous evaluations of both crew preparedness and the implementation of safety protocols.”

As climate change increases the frequency of extreme weather events, the need to have a emergency response plan in place and rehearsed has never been greater. “Here, the role of technology, including mass alert systems and real-time weather monitoring, to keep the captain and crew informed and prepared for any eventuality, is critical,” Johns argues.

“At the very least, if a vessel is to remain in the hurricane zone during the season then a detailed and realistic hurricane plan would be subject to detailed scrutiny under most policies. We would normally expect vessels to be out of harm’s way before the hurricane arrives but, in some cases, this is not possible”
_{Rupert Beckett
Gallagher}

The role of key stakeholders such as insurers is also critical, particularly in terms of ensuring, through policy wordings and the design of the cover, crew emergency response protocols are up to date, fast and reliable.

Market response

Alex Lloyd-Miller, class underwriter and head of A&H)at Aegis London, says this is already happening and the market is responding. Aegis London has seen an increase in inquiries about expanding the level and the scope of super-yacht A&H cover in the aftermath of the Bayesian sinking. “In response and in collaboration with our coverholder and broker partners, we are formulating smarter products, which take a more proactive approach,” he says.

Alex Lloyd-Miller, Aegis London

This new proactive approach involves providing crew with access to health and wellbeing resources from the outset, to assist in both their physical and mental wellbeing when carrying out their duties, according to Lloyd-Miller. “These preventative, rather than reactive, provisions help crew to manage the increasing demands of life at sea and in this way we are focusing on adding real value with our products rather than simply adding more cover.”

The Shipowners’ Club is equally keen to work with the industry to reduce the number of super-yacht losses in recent years. Nicola Kingman, yachts underwriting manager at the P&I club, says there are many factors contributing to the increase in super-yacht casualties.

“Preventative, rather than reactive, provisions help crew to manage the increasing demands of life at sea and in this way we are focusing on adding real value with our products rather than simply adding more cover”
_{Alex Lloyd-Miller
Aegis London}

Shipowners’, therefore, is reluctant to speculate or focus on any one issue. Indeed, the feeling in the club is a holistic approach to the current trend of super-yacht casualties is critical. “There needs to be more focus on raising the standards all the way through the lifespan of a super-yacht, from the design and build stage; through the operational period of the yacht; through to the end of life when the yachts are decommissioned. A more standard approach to the training and qualifications for crew on both private and commercially registered yachts is also something that needs to be introduced,” Kingman argues.

Rise in super-yacht casualties

The Bayesian sinking and other incidents this year involving super-yacht fires, collisions and groundings prompt the question: how concerned should the insurance market be about the increase in recent years in the number of casualties involving super-yachts?

According to super-yacht market intelligence provider SYT Iq, this year has seen the highest number of major incidents to date, with 17 major super-yacht casualties recorded by the end of August. A major casualty is defined as one in which a yacht is destroyed, sidelined for an extended period or in which a complete rebuild is required. The previous peak was 14 major casualties in 2019. This compares with a peak of four major casualties in 2014.

The 2024 figures include a fire in July at the Lürssen shipyard in Germany, which completely destroyed a super-yacht nearing completion. It is estimated the incident will trigger an insurance claim in the region of a $150m, about the same as the sinking of the Bayesian will cost the market.

For Beckett, the super-yacht insurance market has learnt some tough lessons in the past which will stand it in good stead now. For example, in the two years before the Covid lockdown at the end of 2019, super-yacht insurers, like the rest of the marine insurance market, suffered huge losses as the stubbornly low premium rate environment converged with an upsurge in hurricane activity and outbreaks of highly damaging fires onboard vessels and in shipyards.

Nicola Kingman, Shipowners’ Club

This included a fire in 2018 at a Lürssen shipyard at another location in Germany, which destroyed a 100-metre super-yacht and caused significant damage to a building shed, specialist machinery and a floating dock at a cost of around $700m to the marine H&M market. The cumulative impact on the super-yacht insurance market (led by Lloyd’s, where the bulk of the cover is written) was a radical restructuring of the market, with several carriers exiting the class.

For insurers with the resources and commitment to stay in the market, the hardening of the underwriting cycle during the pandemic, also coincided with an increase in demand for super-yachts. According to super-yacht market intelligence provider BOATPro, the number of super-yacht orders delivered in 2021 represented an increase of more than 80% on the previous year, when 365 such vessels came off the production line.

“There needs to be more focus on raising the standards all the way through the lifespan of a super-yacht, from the design and build stage; through the operational period of the yacht; through to the end of life when the yachts are decommissioned”
_{Nicola Kingman
Shipowners’ Club}

Despite the signs of new capacity coming into the super-yacht market and the recent uptick in casualty figures, Beckett believes super-yacht risks represent an attractive area of niche expertise that could deliver consistent longer term returns for specialty lines carriers as part of their overall marine offering.

“We think that well-run and managed super-yachts will always remain an attractive proposition to insurers. While referencing hurricanes, we would maintain a professionally crewed, permanently manned and managed super-yacht would always act in a prudent manner and typically would move in the event of a hurricane warning, especially with the accuracy of modern weather forecasts,” he says.

New capacity usually means lower rating, but in the super-yachts sector there is no sign of significant reductions at present, Beckett says. “Underwriters were heavily scrutinised when the O risk code performed so badly for many years and I believe it would take a significant influx of capacity to change this. If anything, the rating levels will be driven by reinsurance costs, which in turn will be driven by damages far larger and less isolated than just the super-yacht losses.”

Specialist marine broker Tysers, similarly, does not foresee a withdrawal of capacity for super-yachts in the future. “As for super-yacht H&M risks, the market appetite is ever increasing, especially for yachts valued at €50m and over. Keep in mind the super-yacht insurance market lost a significant amount of premium when carriers made the decision to withdraw capacity for Russian-owned yachts. However, different underwriting criteria may be imposed by carriers as often happens as a result of losses sustained,” Tysers says.