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Subject: RE: [worldcruising] Yacht Insurance
From: Bob Taylor (bobt@XXX.XXX)
Date: Tue Mar 26 2002 - 12:02:46 EST
Nice analogy but you did not take into account buying the ground tackle with
the money saved. Somehow that changes the odds I think. Then you have the
Mexican liability laws. You can get Mexican insurance cheep for that in
Mexico. What about the more conservative attitude you might have knowing
you don't have insurance.
You get the idea.
I will be without insurance too but then I don't have any that the state
doesn't force on me now.
One thing to remember is that insurance companies are not in business to
loose money!
Bob sv Adagio
> It is a well-known trade off between peace of mind and gambling. Our
> boat is low in value (US$25,000) and our loss history is zero. While in
> the USA in fact it is other boats that worry me the most. In a more
> sparsely populated area I think I am best insured by good ground
> tackle...or am I being naive?
OK, let's consider it from the point of view of gambling. First, we need
to know the amount of the wager (the extra insurance premium you are
considering paying). For the sake of discussion, I will assume it is
$1000. Now the payoff; assuming (for simplicity) total loss of the boat,
and no deductible, this is $25000. The amount risked is then 4% of the
potential reward. Now, what is the probability of winning? There is no
clear answer, so we have to guess. Your boat is strongly built, well
equipped, and you are an experienced sailor. For how many years could you
cruise in Mexico before destruction of the boat was a certainty? Let's
say 20 years. You will be cruising there for 10 weeks - about one-fifth
of a year. So the probability of losing the boat is about 1%. You have a
one in one-hundred chance of winning the bet!
Now, here's the deal. You can buy this lottery ticket for $1000, and it
has a 1% chance of winning $25000. Since the cost of the ticket is 4% of
the prize, this is a lousy bet. Of course, people bet on lotteries with
much worse odds than that all the time, but the amount they risk is
trivial, and they don't mind losing. But, would you buy a lottery ticket
for $1000 knowing that the odds are 99% that you will lose the money? The
fair price for the ticket would actually be $250. If you could buy the
ticket for that, but still with a 99% chance of losing the money - would
you? I know I would not! I would go with the 99% probability that my
boat will come back in one piece and use the money I save on the insurance
to upgrade my ground tackle!
OK, insurance buffs - flame away!
Bob
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