Insurance outlook for recreational marine and yacht owners

The past few hurricane seasons may be a distant memory, but they have left a lasting impact on the marine market. Recreational marine and yacht owners will pay the price for the damage caused by recent major hurricanes and should brace themselves to ride the wave of premium increases. The renewal cycle will not afford them the same favorable pricing, terms and conditions as they had grown accustomed to in previous years. 

How did we get here?

For years, new entrants drove pricing down in order to attract business and gain market share. Popular marine markets like Lloyd’s, although unprofitable in this sector for years, continued to write coverage. The company did so while collecting inadequate premiums for the true risk exposure it was underwriting. In the wake of recent hurricanes, increased repair costs and massive losses have caused capacity to shrink, leaving agents and owners wondering about renewal terms and conditions and what price they will need to pay to secure coverage.

Forced to make a course correction, insurers increased premiums 10-15% for favorable yacht risks and 50%+ for watercraft in the Caribbean and other hurricane-prone areas.  

Rigorous underwriting from fewer markets requires all hands on deck to help clients navigate the market. Disciplined risk managers and advisors will weather this storm the best.

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Helping your client navigate the market

• Do your homework: A majority of Lloyd’s recreational marine syndicates are no longer writing business. Pantaenius and others have ceased writing business in the Florida, Gulf and Caribbean regions, and many MGA’s no longer have access to their Lloyd’s programs. If recreational marine and yacht business is not your area of expertise, this is not an opportune time to dip your toe in the water. Take the time to fully understand the landscape of the market by working with specialists who underwrite and place this type of business on a daily basis. Their experience and expertise will prove invaluable to all involved. Once your relationships are established, take time to strengthen and nurture those relationships to form a true partnership. Relationships that have a shared sense of responsibility to both the client and the underwriter will have the best outcomes. Underwriters will be more enthusiastic working with brokers who are helping them source and write sound business.
• Spend time educating your client: Take a proactive approach in discussing the current market outlook with your clients. Richard Smith, vice president of Atlass Special Risks, a wholesale provider who has maintained its London market capacity, encourages agents to have honest conversations with their clients. Conversations should be robust and should touch upon the reality of the limited market choices, trends in pricing and underwriting requirements.  Fostering and embracing a thorough underwriting mindset will ensure your client gets the best product and pricing available. Underwriters will favor risks that have solid risk management strategies in place, such as hurricane plans, storing watercraft in Cat IV-rated buildings, use of anti-theft devices, employment of first-class crew and even the hiring of a yacht maintenance firm. The luxury of not having to “package” your risks are long gone and taking the time to educate your client will go a long way in making sure they have as many options as possible.
• Advance planning for market placement and renewals: Don’t sit back and wait for a nonrenewal notice or for terms and conditions that may not meet your client’s needs. With limited capacity available, successful placement will take time. In advance of placement, you may need to work with clients on a risk management plan that will need to be presented to the underwriter in order to even be considered. In addition, the partial applications that may have been accepted in the past will surely not be accepted in this underwriting climate. Creativity and the ability to think out of the box is a must-have mindset.
• Stay up to date on risk management techniques: New technology emerges on a regular basis. High theft vessels that have a history of low recovery should consider tracking mechanisms. The addition of this technology makes it more appealing to underwriters. Lightning protection may be an option to explore since many modern engines will not function if their electronics are compromised. Boat safety programs should also be encouraged for all operators, and background checks are a must for all crew.
• Stay engaged and in touch: Stay up to date on what is happening in the market, especially if you were not able to obtain the coverage and pricing you were looking for. New markets may open up after coverage has been placed, and it’s crucial to counsel your clients on their new options. While it’s never a good idea to place coverage and walk away, in this difficult market, it is more important than ever to stay engaged. You will also want to proactively work with your client to make sure necessary preparedness plans (hurricane, lay-up) are in place and up to date. Oftentimes, clients put plans in place that are not fully vetted, tested and kept up to date. You must be the voice of reason that continues to raise awareness of the importance of having a realistic plan.

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Outlook

A decade of soft market conditions, undisciplined underwriting and underpriced business, coupled with catastrophic losses and increased storm activity, has caused markets to dry up and underwriting to become more selective. Despite this, there is still plenty of opportunity in the recreational marine and yacht market. Good risk managers, working with the right team of specialists, will weather this storm. They will be positioned to take advantage of new markets and capacity that will emerge, and ultimately, the business line will become more profitable.

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Lisa Lindsay (llindsay@privateriskmanagement.org) is the executive director with the Private Risk Management Association, a collaborative group that aims to raise awareness and educates agents and brokers about the involving insurance industry so they can better serve high net-worth insurance consumers. The opinions expressed here are the author’s own.