A wave of opportunity

Rough Notes, Feb 2001 by France, Larry

SPECIALTY LINES MARKETS

Watercraft coverages for yachts, boats and personal watercraft Watercraft is a niche that retail agents' standard companies will probably not address. For the most part, standard carriers consider this niche to be a very small portion of their total book of business; consequently, it does not receive a great amount of their attention. The underwriter may be responsible for several other lines of business and thus may not understand the watercraft market as well as someone who deals with it on a daily basis. Watercraft usually is seen as an accommodation line for auto and homeowners policyholders.

Most markets will provide liability limits of $500,000 to $1 million and hull coverage to $1 million for personally owned boats and yachts. These limits will satisfy the majority of your clients unless you are located in one of the major areas such as Florida and California where watercraft ownership is common. Certain markets specialize in writing large yachts and boats that can be valued at upwards of $50 million.

Most policies will contain liability and hull coverage. Optional coverage includes medical payments, passenger liability, equipment, trailers, towing, underinsured watercraft, and mechanical breakdown. Certain exclusions such as waterskiing and tournament participation can be found in many policies. If your client has these exposures some carriers provide a buyback option. For E&O purposes, it may be a good idea to address these exposures with each application.

Difficult risks such as antique and classic, wooden and nonstandard construction watercraft as well as high-performance boats can also be placed with watercraft specialty markets. Antique and classic boats are ones 25 years and older. For the most part wooden boasts that are desirable to underwriters are of the Chris Craft class. Some coverage can be obtained through an association basis.

High-performance boats are generally ones that can obtain speeds of up to 100 mph. The important issue with this type of watercraft is "what is the manufacturer's recommended horsepower?" A plate on the inside of the boat will provide the maximum horsepower, number of passengers, and weight recommended for that model. Some watercraft today operate with outboard motors exceeding 200 horsepower, but are constructed to safely handle that speed.

Watercraft rental consisting mostly of personal watercraft or the "Jet Ski" type of unit has taken some negative hits of late. Several national parks have banned the use of PWCs due to the impact on the environment from noise, fuel emissions, and shore erosion. A total ban will take effect in 2002. Licensing requirements in some states prevent underage drivers from taking the helm of PWCs.

David Mello, division vice president with K&K Insurance, comments: "On the watercraft rental side, many of the programs have been discontinued. The trends in the watercraft market reflect trends in other areas of the specialty insurance. Some markets that were willing to write the business on a one-off basis are now less willing or unwilling to write the risk."

The issue of pricing has yet to be resolved. Howard Reiff, executive vice president of Ski-SafeSea-Safe, an MGA, states: "Pricing will most likely be firming, trending with the general P&C market. Fewer PWCs are being sold. Those sold are higher powered and valued units; however, we remain strongly committed to providing a competitive market. We also see a continuation of the trend to outsource the underwriting and servicing of this small niche to the specialty markets."

Bob Kinsey of Marine Underwriters Agency, a wholesaler, observes that "declining investment income and capacity along with reinsurance cost increases should push rates higher. On the other hand, a storm-free 2000 might encourage price reductions." Considering these two views, Kinsey feels that overall rates will probably remain close to stagnant.

As was mentioned previously, watercraft does not take up a large portion of most agency book of business. In most cases these risks are placed for existing clients. In a recent Rough Notes reader survey, agents indicated that 79% had placed coverage on boats/yachts in the past year. This indicates that almost every agent will need a market sometime during the year. The Insurance Marketplace for 2001 lists 59 markets for yachts and boats.

The following markets have responded to our survey and indicated they write all or a portion of watercraft risk.

American Modern Insurance Group

P.O. Box 5323

Cincinnati, OH 45201

Contact: Sales Administration

Phone: (513) 943-7200

An insurer operating in all states except HI offering limits of up to $150,000 on hull and $500,000 on liability. American Modern Insurance is an A rated carrier.

Barnhardt Marine Insurance Inc.

4492 Southside Blvd., Ste. 100

Jacksonville, FL 32216

Contact: Eva Poole

Phone: (904) 646-0770

Fax: (904) 646-0659

E-mail: barnhardtins@cs.com

An MGA operating in all states and the Caribbean offering limits of up to $1 million with excess available. A rated or better carriers include RLI Insurance, Royal Insurance, and AGF Marine Aviation Transport.