Specialty Lines Market
Watercraft insurance: Smooth sailing or troubled waters?
Specialty writers see a mixed forecast
By Dave Willis
Fortunes in the boat and watercraft marketplace are driven, for the most part, by discretionary money. For that reason, says Matt Anderson, president of Global Marine Insurance Agency, "It is usually on the leading edge of going into a difficult market or recession. By the same token, it's often one of the first to come out."
According to Anderson, the past three years have been tough for the boating business. But things are looking up. "For example," he says, "we are seeing used boat values stabilizing. The stock market is continuing its upward trend and consumer confidence is returning. Both help trigger discretionary purchases."
Jim Park, director of sales and marketing for Seahorse Underwriters, concurs. "While boat and yacht sales aren't what they were several years ago," he comments, "we are seeing positive signs in the market. Boat show attendance is increasing and the National Marine Manufacturers Association forecasted a positive outlook for this year's boat sales."
Anderson observes that banks and other financial institutions are more willing to lend money. There is also optimism among boat dealers and yacht brokers. "People are returning to the showrooms," he says. "There's some pent-up demand. Whether they'll actually buy in 2011 or hold off until 2012 is yet to be seen."
Adds Doug Semler, vice president of Old United Casualty Company's marine and aviation division, "Time will tell. Traffic and tire-kickers at boat shows are one thing. Until the pen meets the check, dealers haven't sold anything."
There's been one silver lining in the recent economic downturn. "Our best loss ratio was in 2009," says Semler, "when the economy was hitting the skids and boat use was down."
Even as demand fell, capacity increased. "More traditional carriers are getting into what is actually very much of a specialty line of business," notes Semler. "In many cases, there is a lack of real underwriting of the watercraft risk by some of these companies. They are not specialists and, in some cases, they are just selling on price. They have collateral business and are looking to round out their customer's portfolio."
Foreign capacity is coming ashore, as well. "There are more foreign insurers and agencies trying to gain a foothold in the U.S. market, particularly in the marine marketplace," notes Anderson. "They have always had a presence in nonstandard markets, but they're trying to get into our standard business, as well."
Strong market interest may have something to do with relatively good claims experience of late. "We haven't had any catastrophes, such as hurricanes, in a number of years," Anderson explains. "The absence of related losses is also adding to the situation."
This increased capacity has intensified competition. "The boat/yacht insurance market has always been extremely competitive," Park says. "With the downturn in the market, I've seen the marketplace become hyper-competitive. Everyone is trying to find new customers every way they can, while at the same time trying to hold on to existing customers who may be shopping their renewal."
While the market has been soft, Anderson sees some positive signs. "We do see some pricing starting to stabilize," he remarks. "Well underwritten risks with the right relationships are still seeing prices come down, but for the bread and butter risks, you're seeing the stabilizing of premium."
To capture market share and maintain revenues, some carriers are responding with product enhancements. "With the industry becoming more competitive, insurance carriers and brokers are adapting their product to meet the demands of the consumer," explains Park. "More carriers are implementing disappearing/reducing deductibles, loss-free discounts, additional coverage and a number of other offers to make their product stand out in a crowded marketplace."
According to Anderson, there's good reason for agents and brokers to pursue boat and watercraft business. "Typically these are higher net worth people," he explains. "Insuring their boats is a good lead-in to get a foothold with a prospective client. And as a marine-only insurer, we can help agents round out accounts and they can feel assured that we're not going to go after their home or auto or commercial business."
Key, he adds, is delivering expertise—whether in-house or through a partnership. "When an agent can provide someone with the expertise we have, particularly with larger and more unique vessels, that can be a real advantage," he explains. "We can help agents become educated on watercraft and other marine products, which will help them pursue and serve those premium clients."
Semler encourages agents to really know the watercraft specialty carrier or carriers they use—or want to use. "Ask how many years they have been writing the business and the average number of years their staff has in the specialty and with the firm," he advises. "And know the competitive advantage and features of your carriers' policies."
Anderson concurs. "Know and sell the features and benefits of the respective carriers," he explains. "Take time to do a real coverage and sub-limit comparison, and be sure to do an apples-to-apples comparison. Someone may be low coming out of the box, but once you go back and get the pricing up to higher limits, then you find out that some competitors aren't cheaper."
As important as knowing the carrier is knowing the risk. "Agents need to know their customers," Anderson asserts. "Get as much information as possible about the customer, so you can pass that on to the underwriters so that appropriate discounts can be applied."
A common mistake agents make is to simply ask how many years of boating experience a customer or prospect has had. "It's important to ask about experience with a particular type of craft," Semler explains. "If you're buying a new 45-foot Sea Ray and you have 25 years' experience in a 12-foot john boat, to me, that's like having no experience."
Customer knowledge is a two-way street. "Agents also need to be equipped to give customers enough information," Semler adds. This is particularly true when presenting options that may represent the lowest price. "For instance, agents and brokers need to be confident enough in the product to explain that paying $25 or $50 more is a great value if the insured is getting additional limits of liability for something like medical payments coverage."
It goes back to an East Coast clothing retailer's adage, Semler says. "Their slogan is 'An educated consumer is our best customer.' That's true for watercraft insurance consumers—and agents, too."
For Park, good, solid service is key. "Cut-rate premiums and sleek advertising can never replace outstanding customer service," he says. "In this get-it-done-yesterday world, you need to blow your customers away with fast turnaround time, hand-holding and follow-ups. After they call Seahorse, we want all of our customers and agents to hang up the phone thinking, 'That was too easy!'" He encourages agents to have a similar goal.
Boating and watercraft insurance specialists view 2011 and beyond with a mixture of caution and optimism.
"Right now," says Park, "my greatest fear is a double-dip recession. With the current high unemployment rate, high fuel prices, the historically high and ever-increasing national debt and a housing market that is stagnant, I personally look toward 2011 and 2012 with some trepidation."
Does that mean he worries all day about the market bottoming out again? "No," he says. "If anything, it drives me to work harder to provide our customers with the best insurance option for their needs, and to do my part to meet the standards of my company and the carriers we use."
Semler shares Park's concerns. "My greatest concern is the economy, unemployment and the inability of people to buy or use watercraft," he says. "That will continue to loom for a while. The second thing is higher gas prices; that could also certainly come into play again and could cause people to use their boats less or just leave them in storage for the summer."
Longer term, Semler is concerned about what he calls "name your price" coverage with lower limits. "Once a claim occurs, have companies that do this really made a happy customer?" he asks.
Besides the economy, Anderson's greatest worry is the weather. "It's been a number of years since we have had a number of major storms," he explains. "That's always cause for concern. If a storm hits, will the newer carriers get right back out? Agents need to be concerned with that, as well."
Despite these concerns, there's cause for optimism. According to Semler, the potential for increased sales—show traffic and tire-kickers turning into check writers—is encouraging.
Park is excited, as well, about greater interest he's seen in boating. "The increase in attendance at last fall's boat shows and expected increases in attendance for the spring shows lead me to believe that the boating 'bug' that went into hibernation over the past two years may be awaking in the public," he says.
Anderson sees bright prospects, as well. "After a few years of a tough economy, there are a lot of positive, healthy signs for the future," he observes. "We have actually been able to continue to grow our business, even despite the downturn. If things go as we expect, I see the pie growing bigger, and that will spell that much more success."