Hi Owen, welcome to the forum.
The system is adapted to prevent small ships and such to do damage to bigger ships, among other things. This helps prevent 'ramming' on MP servers and such. But also makes it a big more realistic. Ships were sinking too fast of too little damage.
Under the 'right' circumstances though, ships should still take damage and sink, but it now depends differently than before, on the mass and size and such of the ships in question, as to how much damage is done, and to which ship.
And nope, this can't be set differently.
Plus, the game is not about causing damage and sinking, anyway. Quite the opposite actually.
Regards,
Fred