Savvy agents and brokers can take advantage of carriers’ healthy appetites in this market, where low gas prices helped buoy sales of recreational watercraft in 2015.
As summer approaches, boat owners look forward to spending weekends cruising lakes and waterways. However, this past winter served as a reminder that a boat doesn’t have to be at sea to be at risk: January snows collapsed docks and boat slip roofs at marinas in Kentucky, severely damaging hundreds of boats and even pushing several craft past the point of reclamation.
Fortunately for insurers, these types of claims have not been enough to turn the tide of profitability they have enjoyed in recent years. “We had just a phenomenal season [in 2015] for boating, with no significant catastrophes,” says Todd Shasha, managing director of Travelers’ personal insurance boat and yacht unit.
“Overall, we have seen a very manageable amount of claim activity,” says Mike Pellerin, vice president of underwriting at BoatUS, a boat-owners’ association that underwrites insurance for its members through Geico Marine Insurance Co. “We are seeing more usage-type claims because more people are on the water — hitting an object, running aground, road accidents from trailering, and so on,” he adds.
Boat sales, which hit rock bottom in 2009, are up. Watercraft shorter than 26 feet in length make up 95% of the sales market. As sales in that sector have picked up, insurance demand has grown.
“Low gas prices are having a very positive impact on the recreational market,” notes Bill Gatewood, corporate vice president and director of personal insurance for Burns & Wilcox. “The unemployment rate is going down, consumer confidence is going up — and it’s going to be a good year for boating.”
Indeed, the recreational boating industry saw a 7.6% increase in sales in 2015 and finished the year with two consecutive months of double-digit growth, according to Statistical Surveys, a provider of market intelligence to the marine industry. The small-to-midsize outboard fiberglass boat segment saw the most growth.
“Early months indicate it could easily be a record 2016,” Gatewood adds. “We’re definitely seeing more submissions for coverage.”
Healthy appetite
Greater demand for recreational watercraft has been met with increased competition among carriers, which has led to single-digit premium declines in the recreational sector. Gatewood has been able to secure coverage for more difficult risks, such as boaters who like to venture into international waters. “We have capacity into the Bahamas, Mexico, and now Cuba,” he says.
Sean Blue, global head of watercraft for AIG, notes that high reinsurance capacity has enabled more competitors and aided in continued rate softening. An additional contributor to this competitive market is a catastrophe-free experience in southeast Florida over the last 10 years, which he regards as unprecedented — and potentially deceiving for underwriters not looking back far enough. “Some carriers seem to have short memories, and have positioned themselves to grow quickly in what is still a very catastrophe-prone region,” he says.
With the current soft-market conditions and downward trend in pricing, it is now more important than ever for clients to have a clear understanding of what they’re buying, says Blue: “Know your policy and make sure that it meets your needs and expectations. Make sure you understand its warranties. Policies that are within 10% of each other on price may offer very different protection and flexibility.”
Related: Top 15 boating insurance coverage issues agents and brokers need to know
Like with lodging and automobiles, peer-to-peer rentals of boats is growing in popularity.
Recreational boats are commonly written as part of a Homeowners’ package, but agents and owners need to be aware of the limitations of that approach. Specialized Marine forms offer additional coverage such as salvage removal and pollution that can come into play in a loss.
Jim Holler, senior vice president, planning and analysis for BoatUS, notes that over the past few years, more boaters are needing higher coverage limits for both General Liability and pollution when docked at municipal or private marinas.
Additionally, “It is important that people look for a policy that has a standalone limit for pollution,” says Thomas Conroy, managing director at Markel Marine insurance. In December 2015, the federal Oil Pollution Act (OPA) liability limit was raised, putting recreational boaters on the hook for up to $938,800 in damages in the event of an oil spill before federal cleanup funds kick in.
“You don’t have to be operating in coastal waterways to be subject to OPA,” he adds. “If somebody is on navigable federal waters, which can be inland rivers or lakes, they can be at risk.”
Another trend that is surfacing in the Marine marketplace is peer-to-peer rentals, following similar developments seen in the lodging and Automobile markets. Boatbound, Boatsetter and Cruzin all provide online listing services for boat owners and prospective renters to connect.
As most watercraft policies exclude rental, this is a challenging exposure to insure. “It’s difficult to get all of the information on the renter-operator, and even if you obtain information on the primary renter, you can never be certain that they don’t have a friend on board that they turn the wheel over to,” says Holler.
Despite this challenge, in August 2015 BoatUS introduced its Peer-to-Peer Boat Rental Policy for Boatbound, underwritten by Geico Marine. The policy covers the period of time that the boat is being rented and is available for all non-commercially insured boats. The policy provides coverage for hull and equipment, boating liability, fuel spill liability, medical payments, boat trailer damage and uninsured-boater liability.
Coverage is underwritten on a master policy for Boatbound, with a charge applied automatically each time a rental is made. Boat owners and renters are provided a certificate of insurance via e-mail providing the coverage details for a specific rental; there are restrictions on the type of craft that is eligible, and BoatUS encourages boat owners to follow best practices to reduce risk.
“We do rely on the boat owner to vet the renter,” says Pellerin. “We encourage them to set up a time to meet, go over the systems on the boat, take the perspective renter on a cruise around the harbor and make sure they are comfortable with the skills of the user. Even though boat owners are insured, they are obviously concerned that their craft is taken care of by the renter.”
Other watercraft trends inspired by the sharing economy include joint ownership of boats by multiple individuals or families, and Uber-esque “ride-on-demand” services provided by non-commercial boat owners. “In Florida, I can pull up an app and in five minutes be on a sunset cruise on someone’s boat,” Gatewood says.
Although boat owners are in control of their craft with a ride-on-demand arrangement, they could be still putting themselves at risk, he adds. “It’s easy for boat owners to run into policy exclusions if they are providing cruises for a fee,” says Gatewood. “Nobody should just start renting out their boat or providing commercial-type services without making sure that they have adequate coverage, because that’s a catastrophe waiting to happen.”
Burns & Wilcox covers charter exposures with a commercial policy, but that solution can be cost-prohibitive for some. “Often, owners decide they don’t want to pay the additional cost, or they may simply not qualify for coverage because the whole charter boat and water taxi market is very tightly underwritten,” Gatewood explains. “There are Coast Guard regulations to comply with as well. There is not a real clear solution to the ‘occasional charter’ exposure yet.”
Related: 6 things all agents should know about insuring super yachts
The ‘white glove’ experience
There is both a responsibility and an opportunity for agents to educate clients on all the risks they face as boat owners. “You don’t want somebody to find out they don’t have coverage after they have a loss. There is a duty on the part of agents to counsel their clients,” says Gatewood.
John Beachley, yacht product line director for International Marine Underwriters, stresses that in a competitive market agents should promote their Marine industry expertise and personalized service experience. “Agents should think about how to use digital resources to improve the customer experience, such as offering safety tips or making it easy for insureds to upload photos of their vessels or claims incidents,” he adds.
Another way for agents to seize opportunity is by looking for companies that are expanding into this market. For instance, Travelers plans on moving into the personal watercraft market in 2016.
“We are seeing more generalist agents get into the marine business in general, and insuring small personal watercraft can be a good start,” Shasha says. “For agents initially looking to offer marine coverage, we can help them get comfortable with the coverages and start writing business.”
The “personal touch” aspect of making this type of sale is key: Luxury yacht owners look for more than price and coverage. “It’s about the white-glove experience,” says Lisbeth Ryan, managing director of Travelers’ ocean marine luxury yacht group.
“Recently, one of our sport fishing yachts was traveling in the Florida Intracoastal Waterway, making its way to a fishing tournament, when it experienced mechanical issues,” she adds. “Within 30 minutes, we had a surveyor on board the yacht assessing the issues. That’s the type of service yacht owners expect.”
Related: Come sail away: The boat and yacht market
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