Fine art is usually insured on a mono-line, standalone all-risk policy under Inland Marine and is usually not attached to a Property policy. However, there are property underwriters who will write Inland Marine, including a certain amount of fine art, but the coverage is more restrictive. “That's why there's a niche market for Fine Art coverage,” Schipf says. 

Inland Marine also is continuing to outperform the rest of the Property & Casualty industry and has been 10 to 15 points lower in combined loss ratio than the rest of the P&C segment, says Kevin O'Brien, president and CEO of the Inland Marine Underwriters Association (IMUA). Capacity remains “very prevalent” in the marketplace, as it was in 2011, he adds. What's more, Inland Marine has recently seen some modest price increases in riskier lines like Motor Truck Cargo, which is prone to highway accidents; but overall, “Pricing is stable,” O'Brien says. “In certain lines, like Motor Truck Cargo, you're getting increases,” he adds, which is also true for Construction lines such as Builder's Risk and Contractors Equipment.

Motor Truck Cargo Legal Liability has “tons of capacity,” says Andrea Prahl, a senior underwriter who specializes in marine issues for Burns & Wilcox, which underwrites contracts with Lloyd's of London. “Rates have remained fairly stable over the last few years.” 

Helen Leonard, product director for Inland Marine, Americas, at Allianz Global Corporate & Specialty (AGCS) in New York, says she is seeing more companies writing Motor Truck Cargo in recent years to mixed success.

Two years ago, Leonard recalls, pricing was too low: Now, “we are seeing an uptick; it's trending a little higher,” she says, adding that most carriers have suffered losses in this sector over the last two years. “They're finding out that they need to increase rates or deductibles—or some combination thereof—and they need to implement certain warrantees. You can only drive rates down so much, and then you have to know when to walk away.”

Many insurance companies exited the Inland Marine market right after the 2008 economic collapse because shipping, construction and equipment sales were down, says Bob Opitz, Worldwide Inland Marine Manager for Chubb Group: “Now we're seeing either new entrants or people trying to re-enter the market. It makes it more competitive.”

Opitz points to the effect of the American Recovery and Reinvestment Act of 2009, which provided $787 billion in economic investment nationally. As a result, hot areas of Inland Marine include housing starts, which he says are on their way back to levels seen before the economic downturn; infrastructure improvements, such as road repairs; and construction, mostly in commercial building. 

Chubb, too, has seen new entries into the marketplace, especially as the economy slowly recovers—not in the volume of things being shipped, but in areas where government stimulus money is pushing movement, he says.

“Housing starts are creeping back up, and infrastructure; roads and repair projects are steady,” says Opitz. “I think a lot of what we're seeing is a lot of commercial building. The economy is not necessarily better but it certainly is improved over a few years ago.”

Chubb's Inland Marine business includes construction coverages, like builders' risk, contractors' equipment and installation floaters; Leased Property and Installment Sales coverages, such as contingent interest policies in cases where a financier requires the financed party to insure the property; Special Property coverages, for personal items that require unique protections, like jewelry, fine art, agricultural equipment and electronic equipment; and Transportation coverages, which cover shipments in transit, whether it's traveling by a motor carrier or the insured's personal vehicle.

In 2012 three new companies threw their hats in the ring: Ironshore Inc. of Boston, and Bermuda-based Argo Group International Holdings Ltd. and Endurance Specialty Insurance Ltd.

“Companies are coming in and out just like always, but they need the expertise on the underwriting side, on the claims side and on the loss-control side,” Leonard says. “Start-ups will write a lot of it really quickly and get lots of business. They want to fill up their book quickly. Then they start seeing losses.” 

CARGO THEFT ON THE RISE

Current total U.S. cargo losses are estimated to be “in the billions” but it's tough to determine the actual dollar cost, says Peter J. Scrobe, vice president of loss control for Starr Marine. 

From the 1980s through the mid-1990s, cargo theft in the U.S. was estimated at $3 billion in annual losses and internationally at $10 billion, says Scrobe. “Now it's anywhere from $10 billion to $15 billion in the U.S. and from $30 billion to $50 billion globally, depending on who you ask.”

Cargo-theft reporting is not an exact science; local law enforcement will get the report of a loss—perhaps a tractor-trailer has been stolen or hijacked—and if they find the cab or trailer, they see it as having made a recovery, Scrobe explains. They may not factor in the stolen cargo. 

“What people don't know, and our government officials should realize, is the fact that there are probably billions of dollars' worth of cargo and product stolen, and we still don't know the exact number of these goods that are stolen and what and how it's costing us all,” he adds.

Organized cargo thieves are flourishing today under three scam techniques that prey on the U.S. trucking and transportation systems, making the most of modern technology and easy access to information via online industry resources, says Sam Rizzitelli, national director of transportation for Travelers' Inland Marine division. Travelers includes in its Inland Marine coverage segments clean energy and technology; construction; fine art and museums; transportation, cargo and logistics; communications; manufacturing, distribution and retail; municipalities and education; and specialized equipment.  

In ID-theft scams, thieves assume a carrier's identity and use it to “weave themselves into the supply chain,” Rizzitelli explains. These pirates will peruse online bulletin boards where freight shippers advertise loads that are up for bid. The thieves will bid on a shipment, and show up at the freight shipper flashing fake identification—which appears kosher to the shipping dispatcher—and then disappear with a truckload of goods. 

“The thieves will give the proper address for the supposed trucking company or carrier, but change the phone number—giving them a new cell number instead—so the deal seems legitimate,” says Opitz at Chubb. “Intelligence on these cases is just starting to come out.” 

Florida has seen a rash of produce thefts in recent years by thieves using the ID-theft scam. In many of these cases, Santiago says, the growers themselves will post a link on an online bulletin board for a shipment to bid on and the thieves respond, present fake paperwork, and take off with a load of tomatoes, for example. 

Fictitious pick-ups are the second type of identification scam. In these cases, the thieves dig up information on when a legitimate carrier is already scheduled to pick up a load of goods, and they simply beat the real carrier to the pickup point—usually by 30 minutes to an hour—using the carrier's own identity information. By the time the legitimate trucker arrives, the goods are long gone. 

Fictitious pick-ups contain an element of inside help, says Terri Hileman, claims consultant for the Lockton Companies in Denver. This, she explains, is evident in theft figures for 2012: According to FreightWatch International (FWI), an industry watchdog group based in Austin, Texas, more than 78 cargo thefts occurred monthly in the U.S. in 2012, and 80 percent of those were full-load container thefts; only 3 percent were half-loads. This indicates that the thieves are overwhelmingly stealing preferred, larger shipments; they're not just taking whatever cargo they can grab in most cases. “There's some [prior] knowledge about what is being transported,” Hileman notes. 

Thieves still target pharmaceuticals and electronics. FWI saw two “very large” thefts in Georgia in January, says Ron Greene, the watchdog group's vice president of transportation. “Luckily, the company did have good security program in place, and those trucks were recovered very quickly through tracking technology,” he adds. 

The numbers for fictitious pick-ups are on the rise: of the well over 1,200 incidents of cargo theft in 2012, 67 were fictitious pickups—but that's up from about 20 or so in 2011. “The numbers remain small, but are rising,” O'Brien notes. 

Fraudulent-carrier or misdirected-load scams are the least frequent cons, Rizzitelli says. In these heists, cargo-theft gangs actually go to the trouble of becoming legitimate cargo carriers just to steal merchandise. This approach requires the most legwork and dedication: the thieves don't just pose as legitimate carriers—they get fully licensed; buy all the necessary insurance; procure a tax identification number—and actually haul a few initial loads, gaining the trust of shipping firms around the industry.

Such fraudulent-carrier schemes are making it harder for single-unit truckers to obtain insurance. “Single-unit carriers have fallen under some scrutiny because of this trend,” says Opitz. “It's not terribly difficult or expensive to set yourself up as a carrier and then disappear.”

FINE ART WORLD'S WAKE-UP CALL

Superstorm Sandy conquered the fine art world—or at least, the insurance side of it. The influence Sandy has had is apparent in the three biggest trends in the Fine Art insurance arena today: aggregate warehouse storage of fine art; preparedness for disasters and changing environmental trends; and understanding valuations and loss limits, says XL's Schipf.

After Sandy, a number of art galleries in lower Manhattan suffered water-damage claims and have been struggling not only to get their facilities back, but also to restore and reclaim their artwork, Opitz says. Many of these boutique galleries are “below grade,” meaning there are below street level (underground). 

“Everybody is putting paintings into storage locations, and no one knows how much is in them. That's a huge aggregation concern among underwriters,” Schipf says.

Another serious issue in Fine Art losses is valuation: In Schipf's opinion, much of the art destroyed during Sandy was undervalued. “People didn't appreciate the values of the objects or their commercial value until Superstorm Sandy wiped them out,” she notes. “So many dealers were underinsured.”

Art is an area in which valuation is critical because depending on the status of the artist, on any given day it's going to have a huge impact on the value of the work. “We see wildly fluctuating valuations,” says Opitz. “We have to keep a very close eye on that.”

Additionally, Fine Art policies don't have an annual aggregate: If a client owns two pieces worth $10 million each, “you could have two $10 million losses in one year,” says Schipf. Sandy, she adds, has been a wake-up call for the Fine-Art-underwriting community: “everybody is tightening things up.”

Storage is another issue. There are a number of very highly qualified and well-regarded art storage companies in the U.S. and abroad, but the problem is there's simply more art in private collections than can be stored, says Opitz.

“You end up with the potential to have a large quantity of artwork concentrated in small geographic areas,” he says. “It can be problematic for carriers if they have a number of customers in that area.”

Adds Schipf, “It's a matter of aggregate management: are you comfortable with tens of billions of dollars of art near each other?”