Ship insurance

[nintendoh]

One of the players at my table bought a ship an wanted to take out an insurance policy on it. Anybody ever have that happen before. Custom campaign setting but similar to Greyhawk. How would i even go about doing that.

[WarKitty]

Sounds like something my players would do if I gave them a ship. Simplest way to go about it is probably to set a percentage of the ship and cargo's value and charge them that for insurance. Maybe up the rate if they intend to use the vessel for "martial activities." Since this is a D&D setting, you could include riders like resurrection coverage or ransom negotiation.

[Malroth]

Well A normal Insurance policy is a bet against the odds that something bad is going to happen. What the insurers typically do is find out how often something bad happens to the item in question then massively oversell the percieved threat of the risk in question. For example if the average ship has one accident in 33 years which averages to a 3% chance of an accident each year, the Company will sell you a policy that has you paying 6 to 12% of the value of the ship each year which they'll replace incase of the accident.

[WarKitty]

Well A normal Insurance policy is a bet against the odds that something bad is going to happen. What the insurers typically do is find out how often something bad happens to the item in question then massively oversell the percieved threat of the risk in question. For example if the average ship has one accident in 33 years which averages to a 3% chance of an accident each year, the Company will sell you a policy that has you paying 6 to 12% of the value of the ship each year which they'll replace incase of the accident.

Keep in mind insurance companies are also going to charge more for higher risk activities. So if you're planning on going pirate-hunting, better buy pirate hunting insurance, not just regular old commercial insurance, otherwise they won't cover anything because you've been engaging in a non-covered activity!

[jayem]

One of the players at my table bought a ship an wanted to take out an insurance policy on it. Anybody ever have that happen before. Custom campaign setting but similar to Greyhawk. How would i even go about doing that.
Yes, Edward Lloyd
(And much earlier, though they were normally on the goods? and when tied up with loans to some extent overlapping with interest)

But the basic principle is as given. Guess the odds, and multiple the bills by the odds.
As to whom, it's basically a syndicate (spreading the odds on both ends).

[nintendoh]

Yes, that sounds very similar to how insurance works. I dont know at what level the riders should be. The resurrection rider sounds to high level for a company like that. Any person capable of casting that spell has better things to do then work for an insurance company. This leads into a interesting point. How deep into the world economy do dm's go? What if instead of insurance, players would like to buy securities?

[WarKitty]

Yes, that sounds very similar to how insurance works. I dont know at what level the riders should be. The resurrection rider sounds to high level for a company like that. Any person capable of casting that spell has better things to do then work for an insurance company. This leads into a interesting point. How deep into the world economy do dm's go? What if instead of insurance, players would like to buy securities?

This really depends on your players, and on you as the DM. Some players are really into the economics of how the world works. Mine are. Others are completely bored by such things. As always, you're free to turn down whatever seems like too much work to you.

[Beneath]

For insurance to work, you need infrastructure, first of all. Principally you need two things:
One, you need to be sure the person you're dealing with isn't trying to rip you off.
Two, you need a wide enough pool of insured that the amounts they take in will make them able to pay out

Basically, if you buy insurance from someone, you are asking them to bet you a large amount of money that you won't wreck your ship. Considering that there are a lot of ways to deliberately wreck your ship, and even more to do so accidentally through negligence or incompetence, that's going to be a hard bet to convince someone not used to the concept to take, especially if they don't know you. You'll need to convince them that you're both a competent sea-captain and honest in business, while convincing them to gamble with you in a situation where they have more money at risk than you do.

This is why being a captain in someone else's fleet is appealing; if you lose the ship and it's no fault of your own/through your actions you made more goods salvageable than would have happened if you weren't there, they can make you a captain again. It's like insurance, except they own the ship so if a voyage makes more than expected they take the surplus (less however much they give to officers&crew as a performance bonus).

Second, even if you sell someone on the idea of selling you insurance, they need to have enough money to completely replace a lost ship. So the amount they take in per year is going to have to be roughly the value of the most/biggest ships they can expect to lose in a year. With a small pool, variance is pretty high (if you only have one ship insured, then a year where you have any losses is a year they have to pay out the full value of everything they insure). They might be able to take a longer view, for sure, maybe wanting you to put in your ship's value over five years, especially if they're sitting on a hoard of money already, but they're going to have to charge higher premiums with a smaller insured fleet because if they have a bad year for shipwrecks they have to be able to cover it.

The tl;dr is, if you're the only person who wants to buy insurance, then you probably can't buy it.

If you can satisfy these conditions; if there's an insurance market somewhere, maybe a temple that can get you to swear under a Zone of Truth or something when you file a claim under insurance that you are doing it honestly and reporting the incident and any thing you may have done or ordered related to it fully and to the best of your knowledge, which insures a lot of captains, maybe some cartel-owned fleets, then you can expect for a large pool what Malroth said (about 2-4x their expected payout).

For a small pool it'll probably be pricier. To pull some numbers out of something slightly more substantial than thin air, determine the number and total value of ships in the pool; figure the expectation number of losses per year, and add the square root of the number of ships times the average gp value of the insurance on a ship (or perhaps take the expectation value for the number of shipwrecks + the square root of the size of the pool, and simply sum up that many of the most valuable policies they offer. This will raise prices), add on the cost of their bureaucracy and anything extra they want to be able to distribute to investors even in bad years, then divide by the fraction of the pool that your policy is (if you have a 10,000 GP policy in a 1,000,000 gp pool, then you can expect to pay 1% of their highest expected annual outlays in). Note that the policy may be, instead of being per year, per voyage or per mile sailed, in which case the percentage of their total intake you represent should be based on the percentage of the total value of all policies they have you are times the percentage of all activity you are (if the average ship makes six voyages per year, per-voyage insurance should be a sixth of the calculated annual value). It'll be very rare that their outlays will meet or exceed their intake, but they're prepared if they do even if they've distributed their entire treasury to their investors the year before.

A large pool is when Malroth's method gives you a higher price than this method; use whichever method gives you a higher price. In the above example, if the expectation for a ship's lifespan is 30 years, a pool of 100 ships valued at 10,000 gp each can expect 3.3 shipwrecks per year from that, but should buffer against an additional 10; thus its annual intake should be 133,333 gp and its per-ship policy rate should be 1,333 gp/year plus overhead, which is on the high end of what Malroth's method gives (the actual expectation value of outlays per ship is 333 gp/year; times 4 gives 1,333). If we change it so that it insures 81 ships, three with 50,000 gp policies, seven with 20,000 gp policies, and the remainder with 10,000 gp policies, then the pool is the same size but the worst possible year for them would include 2.7 expected shipwrecks, round up to 3, plus nine more flukes, so 12, ten of which would be their most valuable policies, so 150,000 + 140,000 + 20,000 is 310,000 would be their targeted annual intake; thus they could plausibly say they need 3,100 gp annually per 10,000 gp of insurance (they may offer a lower rate for smaller policies and make up the difference by charging a higher rate for larger ones, or they may not)

They probably won't insure warships at all, nor journeys of exploration or into monster territory; you can't get reliable estimates on the frequency of shipwrecks to even determine a price for journeys of exploration, and for the others the likelihood of sinking is too high to make insurance economical; an insurer would have to charge an amount close to the cost of the ship in premiums to ensure that offering such a policy would be a sound business decision, and at that point you might as well just sit on the money and use it to replace your ship yourself.

[nintendoh]

Yes beneath. I completely agree and read everything you wrote. I will do that exactly that suggestion. Contract by inevitable.