PERSPECTIVES. Sean Blue: AIG Private Client Group. Mitigating Risk

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1 PERSPECTIVES Sean Blue: AIG Private Client Group Mitigating Risk Collecting a huge amount of data in order to design their policies, insurance underwriters can prove to be a valuable source of information, advice and intelligence, as we discovered during a conversation with Sean Blue. By: Craig Barnett 391

2 As global Head of Consumer Watercraft for AIG, including its Private Client Group s marine division, Sean Blue enjoys a unique vantage point within the industry. In addition to underwriting the insurance needs of over 200 superyachts within its portfolio of multiple asset insurance policies, AIG also has access to a vast amount of claims data from yacht owners. This information can serve as a valuable guide to the most common issues and dangers posed to owners, and allow for a pre-emptive approach to mitigating risk. During the opening exchanges of our conversation, it quickly became clear that the mitigation of risk is also a priority at AIG Private Client Group (it is after all in AIG s interest!), so with Sean we discussed the most prevalent pitfalls and frequent problems faced by owners. Running a program that provides solutions for large yacht s insurance requirements, amongst the global policies we offer our clients, loss prevention and risk mitigation are priorities. Our approach in this regard can be from general advice to specific Atraining, or indeed a very hands-on approach. Ahead of the Equipping a yacht with a hand-held thermal camera could aid in tracing the source more rapidly in the event of a fire, avoiding potential catastrophe. 392

3 393 Running aground or dragging anchor in a delicate protected marine ecosystem could result in considerable liability for environmental damages... are you covered?

4 brush-fire season in California, for example, we ll go as far as to have our Wildfire Prevention Unit spray at-risk clients properties with a fire retardant if desired, it s that hands-on. We carry this philosophy into the yacht space as well, with full-time yacht loss prevention experts in-house. With several high-profile yacht fires in recent months, we first directed Sean s attention in this direction. Fire may not be the most frequent cause of loss, but it is one of the largest causes of loss in terms of severity. So in addition to emphasizing captain and crew training and on-board fire safety, there are other means of reducing the risk of total loss. In one recent example of an electrical fire on a large yacht, it initially smoldered and smoked for a long period but created very little heat and flame damage. Unfortunately the crew was unable to locate the source until the severity increased to the point where the heat started buckling plates on the superstructure. On this occasion, the proverbial stitch in time was unable to save nine! What we learned is that if crews are equipped with infrared thermal cameras to see the hot spot, the location can be more quickly identified and a worsening situation avoided by pumping fire retardant foam into that void space. If employed in this example we estimate that 90 percent of the damage could have been avoided. In addition to relatively inexpensive thermal imaging cameras (circa $3,500), Sean explained how a form of thermal surveying could also provide an early warning of potential risk. There is a thermographic evaluation that can be carried out on yachts. We haven t heard of any other insurance company doing this for watercraft, but essentially it involves conducting a baseline test of thermographic imaging on wiring, ducting, exhaust systems and other systems while the yacht is running. Periodically these images are retaken to monitor performance and highlight any changes over time. It s another optional early warning system. Before moving on to other subjects and off the hot topic, Sean had a final word of advice for owners: Fires can start for a number of reasons, both at sea under normal operation and during maintenance or service in a yard. In the latter case it is always worth the yacht captain or manager notifying their insurance carrier as it carries a different risk. Some yards also insert clauses in their contracts that contain very onerous language that places the liability for damage caused to the yacht solely on the shoulders of the owner, even if caused by their negligence. Before signing any contract that contains waiver of subrogation or indemnification language, it s worth running it by your insurance broker or underwriter as your policy will not allow you to sign away the rights of the insurer. While conversation was in the realm of total loss, we asked Sean a question that has always nagged at us: in the event of catastrophe and a write off how does an insurance company assess the value of the yacht? Is it based on the replacement price or the assessed market value which is extremely difficult as precise selling prices are very When contracting services, maintenance or repairs, owners and captains should not sign away the insurer's rights through waiver, subrogation or idemnifying claues. Check first! rarely published? Most policies will be designed around an agreed asset value. That means we ll agree with the client on the amount the yacht is insured for. For new construction, this will normally reflect the build cost plus the additional value of valuable contents and finishes. For a used boat the discussion is pretty simple: it s what you paid for the yacht, which is the market value. These agreed value policies don t appreciate or depreciate coverage two years later in the event of a loss, unless of course during the renewal process this has been agreed. So it s agreed value driven rather than market or replacement. Interested in gauging how effective regulations, design and increased use of toys, systems and varied yacht usage affect the safety and security of guests onboard, we asked Sean about common personal injury risks and how they can be avoided? There s not been any dramatic increase or decrease in crew injury claims to speak of though we did note a spike during the period that the charter sector went quiet I won t comment on why I think that is! Sean continues, In terms of toys, we re seeing an increase in new equipment not previously common aboard yachts; whether that s a personal submarine, Seabobs, personal watercraft, inflatable slides, dive gear, kiteboarding, Jetlevs and board, Segways, etc. Toys are important for charter yachts, but there are some that often aren t covered in the insurance policy s language like kitesurfing for example so it s always important to check with your broker or carrier. A personal injury claim by a charter client that you re not covered for has the potential to be expensive! For this reason we advocate working closely with an independent insurance broker, one who is an advocate for the client, and one who understands the complexity of their coverage requirements. Toys represent one field of supplementary equipment onboard yachts, but how can owners best protect other valuables and assets that are brought onboard? There s certainly a big increase in the amount of materials, jewelry and fine art being brought aboard yachts, but there are many less obvious items that require an increase in vigilance. During the unprecedented 100mph winds of the minihurricane in Monaco this summer, one client had some very nice deck furniture. At $5,000 per piece it s important to notify your insurer and include them on the policy. The same goes for expensive wine collections, art and sculpture, which not only add complexity to the insurance situation, but require owners and captains to be more 394

5 vigilant. Running comprehensive background checks on crew hence becomes an important factor. We ve also seen an increase in the number of yachts installing fogging systems that disorientate intruders very effectively. To this point the conversation had primarily involved the operational situation of a yacht, but given the valuable risk management advice they are able to provide, we asked Sean when new build owners should consider involving their insurance broker in a project? It s always preferable to be involved in the design process. There are systems we may suggest that can be considered. But I would certainly recommend engaging the broker prior to the build commencing. There are liabilities the client may have during the build process for which their insurers can provide coverage; especially pertaining to pre-purchased toys, equipment, furnishings and accessories that are held in storage prior to installation. The owner s representative or project manager will also have some liability exposure while working at the yard, so there are coverage solutions available for pre-delivery situations. As the conversation continued Sean pointed out that owners shouldn t solely consider their most valuable assets as being at risk of theft. Many large yacht owners, and I m sure many INVICTUS readers, also own center console craft. I d like to warn them that they are currently being stolen at an alarmingly high rate, especially in the Bahamas and southeast Florida, for either the purposes of human and drug trafficking, or for resale on the black market. A center console boat with triple outboards is a very theft prone boat, so proper security and effective tracking systems can prevent the loss from happening or minimize time lost on the water. From everyone s perspective, prevention of problems prior to occurrence is certainly preferable. Insurance policies may cover assets from a financial perspective, but by sharing advice and providing direction on risk mitigation, the insurer can help reduce claims, avoid inconvenience and emotional distress, and maximize the owner s time on the water. Forewarned is forearmed! I "CENTRE CONSOLE CRAFT, OFTEN WITH TRIPLE OUTBOARDS, ARE CURRENTLY BEING STOLEN AT AN ALARMING RATE IN FLORIDA AND THE BAHAMAS FOR NARCOTIC AND HUMAN TRAFFICKING... ADDITION VIGILANCE AND TRACKERS ARE REQUIRED." Reducing Environmental Risk In yacht insurance third-party liability extends beyond personal injury and property damage. It is increasingly important to seek out a policy with coverage for environmental liability. Fuel spills in marinas or in protected areas are often covered, but check whether or not your policy also includes coverage for marine environmental damage. In a recent example where a yacht accidentally dragged an anchor chain over a fragile protected coral reef, the government alleged some significant damage and sued for a commensurately high claim. In response AIG is now not only working with that government on solutions to prevent a repeat situation through secure swing moorings, but is also involved in an active rejuvenation program for the reef. Ensuring adequate cover not only protects your assets, but also those of future generations. 395