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Old 26-04-2017, 14:54   #211
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Re: Licenses for Americans sailing in Europe

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Well, not really. I pay less than $2000 a year for a very comprehensive policy (with 5 million pounds of liability, and my own property at replacement cost) on a boat worth two thirds of a million (more or less). Ten years of premiums is only $20 000.

I think you might not entirely understand how insurance works. It does not only spread risk over time (taking out "lumpiness") -- it also spreads risks among policyholders. There is no "risk adjusted" cost -- you are not 1000 policyholders, you are one policyholder, and that is the crucial difference. If you were 1000 policyholders, you would be right, but being only one, you are rolling the dice. I don't like casinos, myself. YMMV.
But to get that level of cover at that price you need to convince the insurance company that you are an acceptable risk. Or to put it another way that you are competent to sail your boat within the geographical limitations of the cover. The 2 easiest way of doing that is to demonstrate a history of insurance cover or proof of competencies. For that reason RYA qualifications and easy access to ICC may prove to be self funding especially for a sailor who has limited experience or the ability to prove such. IMO
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Old 27-04-2017, 09:29   #212
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Re: Licenses for Americans sailing in Europe

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Well, not really. I pay less than $2000 a year for a very comprehensive policy (with 5 million pounds of liability, and my own property at replacement cost) on a boat worth two thirds of a million (more or less). Ten years of premiums is only $20 000.



I think you might not entirely understand how insurance works. It does not only spread risk over time (taking out "lumpiness") -- it also spreads risks among policyholders. There is no "risk adjusted" cost -- you are not 1000 policyholders, you are one policyholder, and that is the crucial difference. If you were 1000 policyholders, you would be right, but being only one, you are rolling the dice. I don't like casinos, myself. YMMV.


Dockhead, you're funny. I wish i knew you better to understand where you're coming from...


It's great that you bring up casinos, because I don't like them either for the same reason actually that I'm not keen to pay for hull insurance - the expected return of both is negative.

You see, hull insurance is actually very similar to a casino. You pay a small amount (premium) hoping for a big win (large claim). Just like at at a casino the price to play is set up so that on average the house/insurance wins (expected return is negative). You may think it's different vs. a casino because the big win (claim) is made only when you suffer a big loss. But if you start thinking about the boat loss and the financial contract (insurance) as separate entities you'll see paying the insurance is similar to the casino. (Side note: some "insurance policies" actually don't require you to suffer a financial loss - see "Credit Default Swaps"). The insurance company also thinks about and calculates the value of the financial contract in just the same way as a casino calculates the return on each game.

Of course there can be net positives of insurance (protecting against insolvency for high cost / low likliehood events), which is why I favor liability insurance and medical evacuation, etc However, just like a casino all these policies have a negative expected return. So I'll state again, if you can cover the loss of your boat without a significant impact on your financial life you're financially better off foregoing hull insurance.

I also think it's funny how on one hand you argue about how risky sailing is (getting run over from behind, way more risky than driving, etc.) but on the other hand you extol how affordable hull insurance is. Unfortunately both can't be true. Either you're overestimating the riskiness of sailing or your insurance premiums will be expensive. Unless, of course, you think you have a better grasp of the risks than the insurance actuaries with their mounds of data. (I also guess you're exaggerating a bit the 0.3 % of hull value "deal" you're getting on your policy)

I prefer investments with a positive expected return, and as long as they won't push me to insolvency I'm willing to take some risk to get there. That's why I'm okay investing in equities and other financial instruments - yes I may suffer a major drawdown - but I manage the risk through diversification and in return get a positive expected return. I'm also willing to take the risk of self insuring my hull and collecting the positive expected return from not paying premiums - again I manage the risk by keeping the boat value low relative to total assets. Show me a casino with positive expected returns and I'd be happy to invest/play there as well.

p.s. Thanks, I'm actually quite sure in have a firm grasp on how a risk pool functions. Your argument about not being 1000 people but only 1 doesn't change expected return calculation: expected return = (return * probability of the event). It's the same for 1 person or 1000.

Cheers
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Old 27-04-2017, 10:46   #213
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Re: Licenses for Americans sailing in Europe

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. . . .

p.s. Thanks, I'm actually quite sure in have a firm grasp on how a risk pool functions. Your argument about not being 1000 people but only 1 doesn't change expected return calculation: expected return = (return * probability of the event). It's the same for 1 person or 1000.

Cheers
I suspected it before, but now I'm sure, that you actually don't understand how this is supposed to work.

You don't buy insurance for an "expected return". That is not the point at all, and self-insuring for a fleet of 1000 cars is a totally different proposition from self-insuring one car, even though "return & probability" is the same.

If you don't want the risk of losing the one car you have, say it's a 1 out of 100 risk in any given year, then you will gladly pay a "negative return" to shave off that risk -- say 2% of the value of the car. That fixes your downside to a manageable regular sum, and eliminates the chance that your number will come up wrong -- and THAT is the point of insurance.

If you own a fleet of 1000 cars, there is no point in doing that. Because you will likely lose 10 cars a year anyway, and it's cheaper to just pay for them than to buy insurance at 2%. You may lose 15 cars one year or 7 cars the next, but these are relatively small deviations -- and they get smaller, the bigger the fleet is.

But if you own one car, and it cost $50 000, then you eliminate the risk of being out $50 000 some year, by paying $1 000 every year, an affordable, budgetable, plannable $1000 per year. That's the cost of getting out from under that sword hanging over you and converting it into a concrete planned and budget regular expense.

If you have $50 000 in the bank at any given time and it wouldn't be all that painful to just buy a new car, if your number comes up wrong, then that's one way to go, but you are not "coming out ahead" UNLESS your number DOESN'T come up, as if you lose a car, it will cost more than all the premiums you paid over the years, and plus it will cost you all at one time, rather than being spread out over time. So even in that case, you are gambling. It's just that, in that case, you can afford to gamble.


I never said that sailing is all that risky. I think it's a fairly non-risky activity, actually. The smaller the probability of loss, and the smaller the quantum of the possible loss, the less you will care about having insurance. For example, my insurance excludes (I think) nuclear war. I don't lose sleep over it. But the risk of losing the boat in a collision or grounding on rocks or hull breach or fire (God forbid) is significant enough, even if it's small, and the cost of replacing the boat would be painful enough for me, that I simply would not go without insurance. YMMV.

I think the perceived value of your insurance may also influence whether people choose to go without or not. If you've had claims denied or been subject to bad behavior by insurance companies, then you will perceive less value in having insurance. I have a really good insurance company -- Pantaenius UK -- who have behaved extremely well on two separate occasions since I've been using them, and in whom I have confidence and trust. Most recently a French charter boat pierced my dinghy with a sharp anchor fluke while maneuvering into a berth behind me, and I was concerned with the loss of value of the almost new Hypalon dinghy, and whether or not I would be able to get it repaired before I leave for my summer cruise. My insurance company encouraged me to claim under my own insurance to have the dinghy entirely replaced with a new one, and offered to deal with the French charter company themselves, and promised that this would not affect my no claims bonus (and extremely low rates) since I was moored when it happened. I didn't even prompt them for that; I was only asking for advice. In the event I got the dinghy repaired and didn't take them up on that offer, but that kind of support and service is worth something to me. Sure I could have replaced the dinghy myself and then wrangled with the French, who would never have paid for a replacement, but such an expense would have been a burden at this particular moment. It feels good having that umbrella over my boat, which seems really worth the $1000 a year or whatever the cost difference to plain liability insurance would cost. Your Mileage May Vary, of course, depending on your own particular situation, experience with insurance, cost of insurance, etc.

The other case I had with Pantaenius was maybe even more instructive. Year before last a commercial fishing boat crashed into me at night while I was at anchor. The fisherman had no insurance and no ability to pay for the approximately $20 000 in damage. Pantaenius paid immediately, behaved in a gracious manner, and did not increase my premiums. They even declined to go after the fisherman. Could I have paid the $20k myself? It would have been painful at that particular moment, and it would have been really unpleasant laying out that kind of money for an incident in which I had no fault of any kind.

It sure was nice, having good insurance, at that particular moment. You might never need it, but boy -- when you need it, you really need it.

It's a bit like a life raft, I think -- the odds are very small that you will ever deploy it. So if you calculate the value of your life at x * the probability of drowning if your boat sinks, then you "come out ahead" by not buying the life raft and saving the money. But is it any comfort, as your life slips away in the cold water, that the sinking was a really low probability? If it actually happens? We don't live in averages -- we live in a real, individual, single life, where if the boat sinks, it sinks, and if it was a one in a thousand chance, that's just not even the slightest comfort. You're just rolling the dice that it won't happen.

Yes, as you correctly guessed by now, I have a life raft. Actually, I have TWO life rafts. Both of them fully serviced last year.
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Old 27-04-2017, 11:31   #214
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Re: Licenses for Americans sailing in Europe

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I suspected it before, but now I'm sure, that you actually don't understand how this is supposed to work.
Lol. How you think it's "supposed" to work doesn't change statistics nor investment theory.



[QUOTE=Dockhead;2380716]

If you own a fleet of 1000 cars, there is no point in doing that. Because you will likely lose 10 cars a year anyway, and it's cheaper to just pay for them than to buy insurance at 2%. You may lose 15 cars one year or 7 cars the next, but these are relatively small deviations -- and they get smaller, the bigger the fleet is.



But if you own one car, and it cost $50 000, then you eliminate the risk of being out $50 000 some year, by paying $1 000 every year, an affordable, budgetable, plannable $1000 per year. That's the cost of getting out from under that sword hanging over you and converting it into a concrete planned and budget regular expense.



If you have $50 000 in the bank at any given time and it wouldn't be all that painful to just buy a new car, if your number comes up wrong, then that's one way to go, but you are not "coming out ahead" UNLESS your number DOESN'T come up, as if you lose a car, it will cost more than all the premiums you paid over the years, and plus it will cost you all at one time, rather than being spread out over time. So even in that case, you are gambling. It's just that, in that case, you can afford to gamble.

[\QUOTE]

The difference between an investment and a "gamble" is one has an expected positive return the other does not.

How can you think it makes sense to self insure 5000 cars but not one? Obviously you'll lose out if you destroy the one car - same is true if a hurricane destroys all 5000. What if I had 1 car and 4999 airplanes, would it make sense to self insure in that case? Think about that a bit... Then think about if it's all that different from having 1 boat and 4999 other assets....

[QUOTE=Dockhead;2380716]





Sure I could have replaced the dinghy myself and then wrangled with the French, who would never have paid for a replacement, but such an expense would have been a burden at this particular moment. It feels good having that umbrella over my boat, which seems really worth the $1000 a year or whatever the cost difference to plain liability insurance would cost. Your Mileage May Vary, of course, depending on your own particular situation, experience with insurance, cost of insurance, etc.

[\Quote]

Thanks. This shows you makes insurance decisions based on emotion "it feels good" and not hard statistics. With most financial decisions you're usually doing the right thing when it "feels bad" like selling when everyone buys or buying when everyone sells...

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It's a bit like a life raft, I think -- the odds are very small that you will ever deploy it. So if you calculate the value of your life at x * the probability of drowning if your boat sinks, then you "come out ahead" by not buying the life raft and saving the money. But is it any comfort, as your life slips away in the cold water, that the sinking was a really low probability? If it actually happens? We don't live in averages -- we live in a real, individual, single life, where if the boat sinks, it sinks, and if it was a one in a thousand chance, that's just not even the slightest comfort. You're just rolling the dice that it won't happen.



.

I think not. A life raft is an insurance against a low probability / very high cost event. If you've read my previous posts you'll note I'm in favor of insuring for these type of events. I can't replace my life but I can buy another boat.

Think about it for a bit and you'll realize that you're either buying insurance for the emotional "feels good" reason when you just don't want to cary the emotional burden of that risk, OR, youre insuring something so valuable losing it pushes you to severe hardship / insolvency.

I don't need the first, I insure against the second.

Thanks for the pissing contest. I'll leave it at that. Adios.
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Old 27-04-2017, 11:48   #215
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Re: Licenses for Americans sailing in Europe

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. . .
The difference between an investment and a "gamble" is one has an expected positive return the other does not.

How can you think it makes sense to self insure 5000 cars but not one? Obviously you'll lose out if you destroy the one car - same is true if a hurricane destroys all 5000. What if I had 1 car and 4999 airplanes, would it make sense to self insure in that case? Think about that a bit... Then think about if it's all that different from having 1 boat and 4999 other assets....

Investments actually work the same way. It's all about risk, and cannot be reduced to "return". 1000 stocks, each of which carries a 1% risk of total loss, is different from 1 stock, with a 1% risk of total loss, although the "risk adjusted return" is the same.

The risk of a peculiar event which causes total loss of all 1000 stocks, or which causes the simultaneous loss of 1000 vehicles, is a different kind of risk altogether.

Again, this does not mean that everyone must have insurance. Whether you want insurance or not depends on a lot of different things. It only means that you cannot reduce risk to probability * value -- that is a fundamental misunderstanding of what risk is. Risk and risk-adjusted return converge only with a large amount of diversification. Otherwise you're playing with dice. Which may or may not be acceptable depending on the particular circumstances.
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Old 27-04-2017, 14:12   #216
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Re: Licenses for Americans sailing in Europe

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.....

The other case I had with Pantaenius was maybe even more instructive. Year before last a commercial fishing boat crashed into me at night while I was at anchor. The fisherman had no insurance and no ability to pay for the approximately $20 000 in damage. Pantaenius paid immediately, behaved in a gracious manner, and did not increase my premiums. They even declined to go after the fisherman. Could I have paid the $20k myself? It would have been painful at that particular moment, and it would have been really unpleasant laying out that kind of money for an incident in which I had no fault of any kind.

It sure was nice, having good insurance, at that particular moment. You might never need it, but boy -- when you need it, you really need it.
....
Well it seems that the odds are not that low or that we both have bad luck and a good insurance LOL. It happened exactly the same to me 4 years ago only that instead of a fishing boat was a 55T motorboat at full speed reverse with a blocked gearbox. The damage was about 15 000 euros and the other guy was just a skipper that was very nice with me, but not his boss that was from Palermo (was not on the boat) and did not want to have nothing to do with it.

Pantaenius was impeccable, said they would pay the damage if they would not be able to go after the Palermo guy and his insurance company and even accepted, after a survey, that I continue with my cruise for more three months and some more thousands of miles and have the repair made at a shipyard of my choice.

In the end they nailed the Palermo guy and his Palermo insurance company, but they were there for me. I pay about 1300 euros for an insurance that includes not only hull and third party but medical expenses and insurance for the crew.
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Old 27-04-2017, 17:45   #217
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Re: Licenses for Americans sailing in Europe

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Investments actually work the same way. It's all about risk, and cannot be reduced to "return". 1000 stocks, each of which carries a 1% risk of total loss, is different from 1 stock, with a 1% risk of total loss, although the "risk adjusted return" is the same.

The risk of a peculiar event which causes total loss of all 1000 stocks, or which causes the simultaneous loss of 1000 vehicles, is a different kind of risk altogether.

Again, this does not mean that everyone must have insurance. Whether you want insurance or not depends on a lot of different things. It only means that you cannot reduce risk to probability * value -- that is a fundamental misunderstanding of what risk is. Risk and risk-adjusted return converge only with a large amount of diversification. Otherwise you're playing with dice. Which may or may not be acceptable depending on the particular circumstances.


1st: I apologize for chiming in again when I said I wouldn't but let me be more explicit in how the stock vs insurance analogy works.

2nd. I apologize for tossing around expected return vs risk adjusted return interchangeably earlier in the thread before we got technical.


You're conflating expected return and volatility


To your point: "1000 stocks, each of which carries a 1% risk of total loss, is different from 1 stock, with a 1% risk of total loss, although the "risk adjusted return" is the same."

The expected return (i.e what you expect earn over an infinite time period) of 1 stock vs 1000 stocks is the same (simplifying somewhat). The risk adjusted return measured by the sharpe ratio = (return - return_risk-free)/(stdev of the portfolio) is higher for the portfolio of 1000 stocks. The purpose of the risk adjusted return is to see if one portfolio is better than another or if you're simply earning more due to taking on increased risk (remember the higher risk= higher the expected return/reward)

Now coming back to insurance:
Selling insurance (what the broker does) has a positive expected return. They are taking risk and getting a positive expected return (premiums > claim_amount * claim likliehood)
SELLING insurance is analahous to BUYING/going long a stock.

BUYING insurance has a negative expected return it is analogous to SELLING/shorting stocks. Shorting a stock has a negative expected return.
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Old 27-04-2017, 17:46   #218
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Re: Licenses for Americans sailing in Europe

Hit reply on accident on my phone. Let me finish.
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Old 27-04-2017, 18:25   #219
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Re: Licenses for Americans sailing in Europe

Self insuring is equivalent to SELLING insurance. You are not paying (i.e. Same as getting paid) the premiums in exchange for taking on risk. The actuaries have calculated the premium amount so that you have a positive expected return.

Buying insurance is not an investment because it carries a negative return (like going to a casino).

Now to explain why/when it's okay to have an undiversified portfolio (I.e. Selling/self insuring a single boat or buying just one stock:

We agree a portfolio of 1000 equities has positive expected return and positive sharpe ratio (risk adjusted return) assuming we chose low correlation stocks. You invested equal weighted a million dollar portfolio I.e. $1000 per stock. Now for whatever reason you decide to sell all but one stock. Yes, your stock portfolio now has a poor sharpe ratio and you're taking the full idiosyncratic risk in that one stock. But you should really think about your risk adjusted return in terms of your total ASSETS not just the stock PORTFOLIO. It's not logical to say it's okay for an individual to hold $1000 of stock XXX in a 1 mio portfolio, but it's not okay for the same individual to hold only $1000 of XXX and no other equities. The point is self insuring 1 car is no worse than self insuring a 1000 as long as the the total assets you have remain the same. Hence my point earlier in the thread that it's okay to self insure your hull as long as it's not too big a portion of your total assets. What's the right percentage? That depends on a lot of factors but really comes down to your personal comfort level.

To summarize:
*Self insurance has a positive expected return regardless of if it is one boat or a 1000
*Its okay to be undiversified in your investments as long as your investment is a small portion of your total assets (think about the sharpe ratio, risk adjusted return, on your total assets not just the specific portfolio)
*If you are forced into a large position (i.e have to take on a large long/short position or own an expensive boat) so that you can't stay solvent if you chance gives you something far less than expected return then it's sensible offload the risk through buying insurance say a Credit Default Swap or a hull insurance and improve the "risk adjusted return" or sharpe ratio of your total portfolio.

Admittedly modern portfolio theory isn't the easiest concept to wrap your head around and it took me a while to "get it" after taking my first capital markets class many years ago. But the concepts/theory is directly applicable to insurance. It's also quite hard to explain typing on your phone - hopefully it's understandable

I'm glad to see insurance worked out well for you. If your stories are accurate chance resulted in the insurance provider having a far lower return than expected for your policies. It's not reasonable to assume this would be the case for a typical buyer, or they'll soon be out of business....

Caps added for clarity/emphasis
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Old 27-04-2017, 18:28   #220
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Re: Licenses for Americans sailing in Europe

Just to clarify:
Sharpe ratio = (return_expected - return_risk free)/ portfolio standard deviation.

So the risk adjusted return is a function of your expected return....
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