But there's more to the increases than terrorism, claims a well known figure at a marine insurance firm. And, what's more, Lord Levene, the chairman of Lloyds of London, seems to agree with him.

Speaking to The City Forum on February 3, Lord Levene explained that the Lloyds market had recently reported record profits of over £800m.

"We enjoyed the best pricing conditions for years, " said Levene. "There was little in the way of major catastrophe loss.

And at the risk of mentioning a dirty word, even the equity markets stabilised from the stomach-churning freefall we have seen in recent years."

So, you might be excused for wondering, what on earth am I doing here today talking about challenges to the profitability of the insurance industry, he added.

Good year "Certainly, 2003 was a good year for the Lloyd's market. We finally seem to be getting it right. The economics of insurance are suddenly making sense again for our shareholders."

But Levene went on to say that despite all the good news, it was his firm conviction that 2004 will be the real test, not just for Lloyd's, but for the entire insurance industry.

In Levene's view, what he called the "compensation culture" was, in terms of the global risk environment, "the greatest external threat to the insurance industry."

In January, speaking to the Downtown Association in New York, Lord Levene described this same "compensation culture" as "a cancer on our industry, " and said he believed that it wasn't just an American problem, but one that had firmly taken root in the UK and elsewhere.

What is more, he said, the compensation culture is not just an insurance industry problem, but a national economic problem - and it's not just an American problem.

American problem "We used to like to see it as an American problem. But that too is a short-sighted view, as there is strong evidence that the compensation culture is starting to plunder the UK economy, " he claimed, likening the cost of the compensation culture to a 5% payroll tax.

Lord Levene said actuaries predict that this culture is costing UK plc about £10bn a year - and that this cost rising at 15% per annum, the average cost of an employers' liability claim having increased by over 100% over the last five years, whilst clinical negligence, which cost the NHS £6m in 1975, cost nearly half a billion by 2002.

Wake up Politicians in Whitehall and in Brussels need to wake up to the problem, says Levene, and they need to wake up now. Ignoring it and hoping it will go away is not an option. If they need any proof, they need just look across the Atlantic. We need to see politicians set aside their political agendas and recognise that spiralling litigation impacts all political boundaries and crosses most industry sectors, demanding an appropriate and collective response. "Without it, the damage to the economy could become irreversible, " concluded Levene.

But what has this to do with the cost of insuring a boat, I hear you ask? Well, everything, frankly, if you also listen to a well known marine insurance company in the UK that also attributes the increase in the cost of marine insurance to that same compensation or "blame culture" that has become so prevalent in society.

Chris Knox-Johnston, marketing manager at Haven KnoxJohnston - a division of Amlin Marine Services Limited, member of the General Insurance Standards Council, and a subsidiary of Amlin Underwriting Limited - described insurance as "like a bucket."

Claims take money out "Boat owners put money in, those that have claims take it out and what is left belongs to the insurer, " he told me. "If there is not enough money in the bucket, the amount that goes in has to be topped up. If there is more in there than needed, the insurer is deemed to make a profit and premiums remain stable or may even reduce, " he said, noting that:

"it's a simple analogy, but as with all forms of insurance, the emerging 'blame' culture threatens to undermine what is a relatively straightforward concept."

We live in a litigious society, and as Knox-Johnston explained, a judge decided that the owner was negligent and that the "friend" and crewman should receive compensation - enough to make any boat owner fearful of inviting any one out with them.

Substantially lower "Payment was subject to limitation and was substantially lower even than the maximum limitation figure. It certainly makes insurers sit up and take notice when such claims land in their claims departments, " Knox-Johnston told me.

Since the advent of "no win - no fee" cases, liability has become the major issue for insurers. "We accept, of course, that there needs to be recompense for true negligence, but since the advent of 'no win - no fee' cases, liability has become the major issue for insurers.

And according to KnoxJohnston, the situation appears to be getting worse.

At present marine limitation of liability is governed by the 1976 London Convention, which refers to claims for personal injury and loss of life and includes loss of or damage to property, as well as "removal of wreck".

The usual pleasure craft insurance policy includes liability to the extent that "the insurance will indemnify the assured in respect of all claims which the assured shall by reason of interest in the insured vessel become legally liable to pay and shall pay'.

Legal liability In effect this section of the insurance covers the legal liability for negligence causing loss or damage to third party property and injury to third party persons. It also covers "removal of wreck" because that is a claim that, under maritime law, the assured may be legally liable to pay.

So, in money terms, what does all this mean? Under the 1976 convention the liability is limited, by law, to a cap of about £225,000 for any one accident irrespective of the number of people involved or the total amount of loss or damage.

However, as Knox-Johnston told Boating Business , this is all going to change. Whereas previously the amounts were limited to a total of about £225,000 for damage claims and personal injury claims, the limits will soon be revised upwards to £1,275,000, but in certain circumstances, may increase to a revised maximum of approximately £2,700,000.

Higher limits The new limits are much higher and because there is more at stake, it is likely that more claims will be made and awards higher. Current premium levels will not be adequate to sustain claims of this size. If you take an average premium of £200, around 10,000 policies would be required to meet one such claim.

While the current liability limit of £2,000,000 may still be adequate, the chances of defending a claim for a higher amount have increased significantly, as have the chances of an award being made up to these new limits.

Insurers will need to ensure that they have the funds to make any payments that result from increased awards.

"There is no definitive timescale to these changes but they will lead, inevitably, to further increases in boat insurance premiums, " KnoxJohnston explained. "But, this time, don't blame the insurers.

Remember, insurers get their income from policyholders and, in effect, every award comes from the pockets of you and me. In this new culture of 'blame' it is as well to remember who ends up paying the bill."

A true story

A boat is coming into her marina berth but a sudden gust of wind catches her. The skipper asks his crewman to get a fender from port and put it over the bow on the starboard side.

The crewman grabs the fender and on the way across the foredeck, slips and lands on his knees. He gets up and gets the fender over the starboard side in time and all is well.

Two years later, the skipper gets a writ from his "friend", passenger and crewman alleging negligence on the owner's part because there was not a fender in the right place when needed.

He alleges that the injury to the "friend" and crewman was caused by the owner's negligence and he is claiming for £500,000 damages.

That this case even went to court may come as a surprise - but this is a true story.

True story (2)

The compensation culture can start with seemingly insignificant incidents, says Lord Levene.

"Recently, I read that a Wolverhampton postman who pulled a muscle is taking legal action against a university lecturer. What was his crime? He put too many letters in a postbox.

The postman's solicitors said that in posting the 20kgs of letters, the religious studies professor was 'negligent in failing to appreciate the risk to our client of posting so many letters'."

Amazingly, as Lord Levene explained, the professor has received four warning letters claiming compensation and may have to go to court.