Blue skies and smooth sailing
Fair weather forecast for marine and aviation business
bodes well for agents, insurers
By Susan R. A. Honeyman
Dan Strother, chief of operations at Specialty Aviation Underwriters (SAU), had just returned from the St. Louis Boat and Sports Show, a five-day event for enthusiasts of boating, fishing and other outdoor activities, and he was upbeat.
"Attendance was up tremendously over last year, and marine sales were doubled. There were great crowds. Saturday afternoon, you could barely walk through the aisles," he reports. The crowd included a lot of people who own both airplanes and yachts, flying to their "airport car" from St. Louis or Kansas City to the Lake of the Ozarks to use their boats on weekends.
Strother was there to show the brand colors, representing both SAU and Old United Casualty Company, the aviation and marine specialty insurance divisions of Van Enterprises. He was upbeat because the increased attendance allowed him to meet the boat and aircraft owners who could be his customers and to provide them with a list of local independent agents to call. The successful show also was a positive change for the recreational industries, which is good news for insurers that protect the boats and planes, as well as the people who pilot them.
Old United Casualty and SAU have managed to steer a steady course amid the turbulent waters and skies of the past few years, but in the long term, all businesses need to grow. An uptick in the marine and aviation sectors is just what the insurer needs as it gently alters its course by expanding its pool of independent agents, its technology and marketing thrust, all while retaining its operational advantages and underwriting philosophy, according to Douglas Semler, vice president of the Marine & Aviation Division of Old United Casualty Company. Old United is rated "A" by A.M. Best and has assets of more than $400 million.
The Merriam, Kansas-based Old United Casualty Marine Division writes "plain vanilla" watercraft risks, ranging from personal watercraft to yachts with up to $3 million hull value and $3 million P&I (protection and indemnity) liability. Within that range, it has carved out a carefully reasoned niche based in large part on the types of owners the vessels attract.
For example, the insurer will not take on watercraft that go more than 65 miles per hour, but it does seek out bass boats—fast boats used for weekend bass fishing tournaments. Why?
"We recognize that owners use the boats regularly and pamper these rigs," Semler says. For owners who spend large sums on boat motors and trailers for these fishing vessels, "it's an obsession as much as a sport," and they use the higher speeds just to get to their fishing spots quickly and return quickly.
The insurer goes after these boat owners with Angler's Advantage, an insurance program that offers options like tournament fee reimbursement and higher equipment and personal effects limits. The same program can switch from personal to business protection, covering fishing guides affiliated with local resorts whose vessels are under 26 feet in length and $100,000 in value. The high end of this program includes fishing and sightseeing charter boats that carry up to six passengers plus crew. All told, Angler's Advantage brings in about 7.5% of marine division revenues, Semler says.
The carrier insures yachts with a customizable package policy and personal watercraft with a standardized package. All told, Old United writes more than $10 million in watercraft premiums, though volume has decreased in the last two years primarily due to the recession, Semler remarks.
What mainly differentiates Old United Casualty is the experience level of its staff of nine; it has more than 120 years of aggregate watercraft specialization, Semler comments. "That's all we do."
Another factor is discipline. "We're averse to hurricane-prone areas; we don't write boats moored or stored full time within 50 miles of the coastline from the Virginia/North Carolina border to the Texas/Mexico border, though they can be used in those areas," Semler explains. That's because he can't realistically charge those coastal owners enough to cover reinsurance of their wind exposure. "Since we don't write there, we can offer more competitive premiums to our policyholders based on our actual exposure throughout the rest of the country."
Yet another differentiating factor for Old United Casualty is structure, with an internal decision-making process that allows it to respond quickly to questions and applications.
Despite a slip in gross revenue, net revenue growth made 2009 a very profitable year because claims were down. Clients kept their boats in the dock or garage and fewer inexperienced boaters were out on the water, resulting in fewer accidents, according to Semler. Old United Casualty's claim frequency dropped by 14.8% and severity by 44.9% between the normal 2007 year and the depressed 2009 year.
Now the carrier is working more aggressively on top-line growth by lifting its tight limitations on the numbers of agents and the geographic area it serves. Agents are being appointed throughout the country, including one who has begun selling the carrier's marine products in Hawaii.
A new offering
Semler also is considering some changes on the product side. Noting that Old United has always offered "a fair price for a Cadillac product," he's looking to broaden his company's appeal to a more price-conscious audience "by offering a Chevy product with reduced coverage for them."
This month, the company will go live with an Internet portal that will provide real-time quotes for its appointed producers from its mainframe computer, Semler says.
There have been other changes, too. Old United Casualty has had a strong, successful 14-year relationship with Western Marine Insurance Services (WestMar), a Stockton, California-based specialty marine program manager that runs the proprietary AquaPac Xtra program of the Western Boater's Safety Group Association through Old United and is the carrier's biggest marine producer. Two years ago, WestMar merged with Norman-Spencer of Dayton, Ohio, which gives the West Coast company a national footprint. The expansion has started with Texas, says 82-year-old Joe Cecchini, who in January stepped down from his role as WestMar's CEO and chairman to mentor new leadership. Geographic expansion fits well into both companies' plans.
WestMar has written close to $100 million in business with Old United Casualty that "has been profitable for them and for us," Cecchini says. "Old United has been very flexible—which is difficult with a larger insurance company," and has responded well to requests to adapt the program to changing needs.
He sees the insurer as a knowledgeable and professional partner. "They know exactly what the status of the program is in premium sales, losses and claims, and can evaluate by lines of businesses," slicing and dicing information on a constant basis," Cecchini remarks.
Specialty Aviation Underwriters (SAU) opened in 2005 as an independent managing general agency in Birmingham, Alabama, with Old United Casualty as a partner and the actual insurer.
SAU's business plan favors a specialty niche of antique (built before or during World War II) and classic (September 1945 through 1955) aircraft, including "warbirds"—domestic and foreign-built military surplus aircraft. It also covers seaplanes, home-built aircraft, transitioning pilots, ferry flights and air shows. Its limits can reach to $3 million hull coverage and $5 million liability coverage.
In July 2009, Van Enterprises purchased a controlling interest in SAU. In December 2010, Van acquired the remaining shares, making it a wholly owned limited liability company (LLC) and part of the Old United Casualty specialty insurance division. SAU already handles an estimated 25% to 30% of the specialty aviation market, and the centralized control now will allow SAU to further expand its market share, Semler says.
"Our vast pool of resources will help Specialty Aviation Underwriters, LLC, expand its scope of business and better meet the changing aspects of the aviation insurance marketplace," said Dan Mattox, president of Old United Casualty, when the purchase was announced.
The aviation insurance market was not hit as badly by the economic downturn as the marine market, and Strother believes it's leveling off. "There is not as much rate competition as there used to be, especially for us since we're in a unique niche market that requires more expertise and has less competition. Only a handful of insurers will write a warbird or a military fighter."
As one would expect, SAU evaluates each submission independently, based on factors far beyond just pilot hours and aircraft models. "We look at the history of the pilot, the plane and the location where it is hangared," Strother explains. This approach allows SAU to provide coverage for aircraft that others don't want to handle—such as one of the few privately owned MIG-29 fighter jets in the country.
Strother's enthusiasm is obvious as he discusses flying. "I flew over Lake Tahoe once in a B-17 (World War II-era heavy bomber) in formation with a B-25. It was the thrill of a lifetime," he says.
Angie Harris is president of Cannon Aviation Insurance, a Scottsdale, Arizona, agency founded by Bob Cannon and known for its niche in warbirds and classic aircraft that Angie calls "the fun stuff." Harris relishes her agency's relationship with SAU because it is "hands down one of the easiest underwriters to work with." She places at least half her company's specialty aviation business with SAU because, "When you're an agent, it's important to have someone flexible and efficient underwriting business. They (SAU) take our ideas and embrace them, rather than saying 'no' because it is something different," she comments. "They find a way to work with us."
Sometimes, for example, clients need to take their aircraft overseas, which could complicate their coverage since Europe has high liability requirements. SAU has worked with its European connections to supply the protection needed en route and during a stay in Europe.
Going forward, Semler expects challenging years ahead for the aircraft and marine industries and for his company. Marine rates are soft, and it will take a hurricane or two to harden them. "They may take a while to return to the 2005-2006 levels. Meanwhile, Old United is increasing its advertising and marketing efforts and locating more agents to grow both divisions," Semler says.
Old United Casualty, despite its name, is a modern, flexible company bent on finding new ways to insure boats and airplanes while keeping its bottom line from sinking and its top line flying through profitable skies. The same can be said for its sister company, Specialty Aviation Underwriters LLC.