Yea, the difficulty seems to hinge on whether or not you manage to capture an island. If you do, then you can heal your ship, at which point I agree with you--the game becomes super easy. If you fail to kill three enemies (prerequisite of capturing an island), then it becomes a "sail around at zero health" game.
A "difficulty" feature could just be a toggle: Start with a claimed island, or start with no claimed island.
A "difficulty" feature could just be a toggle: Start with a claimed island, or start with no claimed island.