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Insurance Surveys

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Insurance Surveys
 
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Introduction

This inspection is performed so that the insurance company can determine whether or not the vessel is an acceptable risk. They are interested in structural integrity and safety for its intended use. Most insurance companies require a survey on older boats. They will also want to know the vessel's fair market value.

The insurance survey, Condition and Value survey or C&V as it is often referred to, is a survey intended for use by insurance companies for evaluating whether or not they will insure a particular vessel. This guide will assist the surveyor in identifying the information to be covered in the survey and report.

C&V Defined

An insurance survey is a limited form of survey that is intended to assist insurance underwriters in making underwriting decisions.

The survey has two primary purposes: (1) to identify the vessel, its equipment, condition and general value, and (2) to identify defects, damages or hazardous conditions that pose a potential threat to the safety of the vessel and its passengers, or any other such condition that is likely to result in loss or damage.

Insurance surveys do not cover the details and cosmetics of a vessel and should never be provided to a client who is purchasing a vessel for the purpose of making a purchase decision.

The surveyor's report is his work product. It is the example that illustrates to the industry the degree of his professionalism and competence. It is from his reports that his work will be judged. Survey reports are often seen by many people, not only in the present, but often far into the future. It reflects his competence and constitutes one of his best forms of advertising. Therefore, the surveyor should strive to produce a report that meets the highest professional standards.

Insurance surveys should contain the following information:

  • A statement of the purpose of the survey
  • Date and location of survey plus status of vessel either afloat or hauled
  • Builder, model (if any), and year of construction completion
  • Vessel type, such as fly bridge, sport fisherman, open fisherman, aft cockpit sloop, center cockpit ketch etc.
  • Identifiers should include hull number, registration number and engine serial numbers
  • Specifications should include principle dimensions, machinery parameters such as model number, horsepower, turbo charged, transmissions, etc., plus fuel capacities

A general statement describing the vessel, whether its production or custom built, major alterations, additions or refits, major builder add-ons such as bait & tackle centers, towers, custom tops, exterior seating arrangements or any other major features that significantly affect the value of the vessel.

Equipment inventories should include only items of significant value or aggregations of smaller items that add up to substantial value. The creation of long lists describing everything on the vessel should be avoided. Underwriters neither want nor appreciate this. This is useful to insurance companies in the event of claims, and to help assess value.

CATEGORIES TO BE CONSIDERED

Construction

A general statement describing the hull construction and superstructure is generally all that is necessary for most production built vessels, unless the nature of the construction or design is unusual or unique. It is important for underwriters to know if a vessel is built of exotic, unusual or experimental designs or materials, or whether it is an unusual or experimental design.

It is generally not necessary to describe in great detail the scantlings of the hull such as dimensions and spacing of frames and stringers, etc. It is sufficient to state that the hull is lightly, moderately or heavily built without going into great detail, unless there is a real need to do so.

Cockpit Designs

Sport fishing vessels and other vessels with cockpits that are particularly low to the water line should be inspected for the potential of sinking the vessel should there be a significant change in trim, heavy rain storms or other adverse conditions.

Propulsion Machinery

Particularly for motor vessels, the propulsion machinery constitutes a major part of the vessel's value and therefore deserves careful attention by the surveyor.

Model & serial numbers

Engine hours or approximate age

Overhaul dates if known

Apparent condition of exhaust risers. Whether exhaust risers are of adequate height to prevent backsurge

Visual condition of exhaust piping and mufflers and thermol testing.

Fire protection of non water cooled exhaust systems

Condition of belts, hoses and engine wiring

Inspects of throttle and shift control cables

Stuffing boxes tight or leaking

Existence of significant fuel, oil or coolant leaks

Presence of water

Exhaust temperature alarms

Presence of neutral safety switch (engine won't start in gear)

Potential for carbon monoxide hazard to passengers from engines

Auxiliary Machinery & Generators:

Name, model and serial number if possible

All Equipment should be tested and proved operational:

Bilge pumps, number and capacity

Navigation lights & horn

Steering system

Engine controls

Fuel System

A General Description of the fuel tankage, fuel lines, fill system, valves and filters.

Fuel systems have the potential for fire, explosion and pollution hazards so that the integrity of these systems should be dealt with in detail.

Compliance with ABYC H-24 should is considered mandatory for gasoline systems.

Condition of gasoline fuel tanks, particularly foamed in place aluminum tanks, should be reported. If tanks are not accessible, that should be so stated in the report.

Electrical Systems

While it is not possible to survey an electrical system to a standard such as ABYC or NFPA-302, basic compliance of the fundamental system safety features of both AC and DC systems is considered and referenced when possible. Reports describe the basic system design and circuit protection. The DC and the AC system polarity and GFCI protection is checked.

Galley

Cooking Facility: Compliance with ABYC section A-1 should be considered mandatory for LPG systems and section A-22 for CNG systems. Section A-3 compliance is recommended for electric systems. The presence of flammable or unprotected materials around the stove should be reported.

 

Plumbing Systems 

Inspected with a view toward the water tight integrity of all sea water systems. This means that materials should be highly corrosion resistant and systems designed in such a way as to avoid hazards for reverse siphoning, especially for such things as cockpit drains, bait and fish wells, shower and bilge pumps.

Type, quality and condition of sea cocks, strainers and hoses on all through hull systems

Bilge pumps, bait wells, heads, shower pans and sumps should be checked for reverse siphoning potential.

Piping and hoses should be of good quality and be adequate supported, properly joined and free of dissimilar or highly corrosive materials such as iron, steel, aluminum and raw copper. All deficiencies should be reported.

Safety Equipment

It is mandatory that a vessel meet U.S.C.G. requirements for safety equipment as these are statutory requirements. The survey contains a detailed itemization of the equipment, the dates of inspection or re-inspection (such as for life rafts, fire equipment and emergency transmitters), and notation of whether vessel is in compliance.

Basic Vessel Design

Statements as to seaworthiness are only be made in the negative since seaworthiness is a relative term and includes items not a part of the vessel. The following are some relevant issues to be considered:

Is vessel suitable for the area where being used? Note any limitations or recommended restrictions on use. Examples would be inland houseboats near oceans, sailing vessels lacking adequate auxiliary power in areas of strong tides or currents, vessels with low power or poor maneuverability on swift flowing rivers.

Are decks safe with adequate hand railings or hand holds? Are there unsafe features that could cause bodily injury such as badly designed flying bridge ladders or lack of railings on an upper deck? Are the cockpit deck and drain scuppers properly designed and of sufficient height above water line to prevent inadvertent sinking, particularly outboards and other small craft with low, open cockpits?

Are doors, windows, hatches and portholes suitable for marine use? Do all openings have a provision for locking from the interior? Are locks of good quality or are they easily broken? This is some of the information that underwriters find useful for assessing risk.

General Considerations

Reports are prepared and written to indicate that all basic systems either were or were not inspected. For example, when a gasoline fuel system is inspected for condition and leaks, the report should say so. Otherwise, the reader can rightly assume that the system wasn't checked if the report does not so indicate.

A good survey report is one that indicates that all systems of major importance were either inspected and the condition noted, or it indicates that the system, or parts thereof, were not accessible for inspection. The surveyor lets the reader know what he has done, or was not able to accomplish. It does not reflect poorly on the surveyor to state that something wasn't, or couldn't be inspected or tested. On the contrary, to do so is a sign of integrity and thoroughness in reporting.

Overall Conditions

Overall Conditions such as high wear and tear, lack of maintenance, uncleanness, clutter and disorganization reflect more than just the value of the vessel. It may reflect the owner's state of mind and financial condition and have a direct bearing on risk assessment. Such conditions deserve comment, but should be made with discretion.

Language & Terminology

Consider that the end users of survey reports may not have a marine technical background. Survey reports should be written in as common language as possible while maintaining professionalism and referring to appropriate marine terminology.

Vessel Security

The security of the dock or mooring location of a vessel is often of major importance to underwriters. Security of the marina or dock against wakes of passing vessels, tides, floods on rivers, storms, hurricanes and theft risks. Poorly constructed docks, inadequate mooring lines, pilings that are not adequate for the tidal range are among the things to be considered.

Theft Risk

Is an important consideration. Interior security was already mentioned, but what about unsecured electronics, dinghies and outboard motors that could easily be stolen. These are all appropriate considerations for the insurance survey.

Recommendations

When receiving a survey report, most likely the first thing the underwriter will look at is the Recommendations section, for this is the section that tells him most about the condition and insurability of the vessel. The recommendations section should consist of statements of fact pertaining to any and all deficient, substandard or dangerous conditions as would affect the safety and seaworthiness of the vessel or its passengers. The recommendations should include a statement of generally how a deficient condition should be restored to acceptable condition.

Priority Recommendations

Underwriters like surveyors to indicate and highlight any such defects that affect the immediate safety of the vessel. It is useful to them for surveyors to prioritize in terms of "immediate," 30, 60 or 90 day time frames to complete the correction, based on the surveyor's assessment of the hazard.

It is also acceptable for the surveyor to make recommendations or "suggestions" that are not mandatory. These can include such things as installing a bilge high water alarm or better locks on a door or hatch where there is no standard or mandate that the owner do so, but where the surveyor believes it is a reasonable precaution.

Appraised Value

Professional surveyors are qualified to appraise boats and yachts. While insurance value and market value are not the same, the surveyor is not qualified to determine what amount is insurable, and therefore should assess the Fair Market Value only. There are frequently mitigating factors to market value. In this case, the surveyor should appraise the market value. It is up to the underwriter to determine the amount his company is willing to insure.

The basis for determining the Fair Market Value should be stated. Looking up a price in an appraisal guide does not constitute an appraisal. Insurance companies have appraisal books too. While insurance surveys are not formal appraisals, and while it is not necessary to detail the method of appraisal, the basis of the appraisal should be stated whether extrapolation from a guide only, actual market information, or both.

The best approach for determining Fair Market Value is to determine what similar or comparable vessels are selling for in a specific region. The most useful tools for doing this are newspapers, marine magazines and specialty advertising publications, and the Internet. Asking prices are then adjusted for wishful thinking, equipment and condition.

Conclusion

Even though the survey may be commissioned and paid for by the vessel owner, an insurance or finance company is a direct beneficiary and end user with the clients authorization. The surveyor has a fiduciary responsibility to anyone who makes use of his report, and must strive at to accurately represent the condition of the vessel. Significant misrepresentation or omission relating to the condition or value of the vessel may result in financial loss to third parties