Growing insurance challenges facing recreational boat owners

Demand for new pleasure craft has been buoyant, and the realization that boats provided a safe way for families to spend time together during the Covid-19 pandemic has played an important part in driving the recreational market.

But other longer-term trends have also contributed. Water sports are becoming increasingly appreciated for numerous health benefits, the high-net-worth population has been growing, and there have been impressive technical advances in boats and boat engines.

So, according to Valuates Reports, the global recreational boating market was projected to enjoy compound annual growth of 5.1% between 2020 and 2027.

Meanwhile, however, opportunities for pleasure craft owners to find suitable insurance have been contracting for certain segments.

“A dozen major marine insurance programs have withdrawn in the last five years,” says Tom Conroy, managing director, marine at Markel. “Indeed, during that period this market has changed more than any other insurance sector I’m aware of.”

Being without coverage is simply not an option for most owners. With so many electronic systems now involved, a single lightning strike can cause a yacht hundreds of thousands of dollars of damage, and costs can extend well beyond a boat’s value if it sinks or breaks loose and causes damage to other boats or property in a storm.

There could, for example, be significant expenses incurred for wreck removal, for remediating pollution, or for liability for damage caused to other parties – at a time when both defense costs and verdicts are soaring.

The remaining underwriters in the market are grappling with higher claims costs, and not just because of a spate of hurricanes. Challenges include increases in the price of labor, a shrinking number of repair facilities, a dwindling supply of spare parts, and the general economic inflation rate. These costs are in turn fueling premium increases.

Casey Matthews, marine personal lines claims manager at Markel, reports that during the last five years labor rates have risen by 15% to 50% in some places.

“There are fewer marine surveyors out there, and factories aren’t churning out repair parts in the way they used to,” Matthews says. “In normal circumstances, parts could be found quickly to allow for repairs to be effected. However, a repair that might otherwise have taken three days to a week to complete may now take upwards of three to six weeks, largely because of the time needed to hunt down the parts.”

Not only are premiums creeping up, but some boat owners are finding it hard to find coverage at all, particularly those with boats worth between USD 500,000 to USD 5 million in coastal waters between the Gulf of Mexico and New England. Older yachts and vessels with three or four outboard engines are especially problematic.

Matt Anderson, president of specialist brokers Global Marine Insurance Agency, says, “We have instances every day where it is very difficult to find adequate coverage options for clients located in southern coastal areas.

“Sometimes we have to consider E&S (excess and surplus lines) solutions, which can be challenging from the client’s perspective, as they come with risk factors they need to be aware of, involving different coverages than a standard marine carrier, and additional requirements.”

A few years ago, many boat owners could access suitable insurance via more generalist markets, and provide information in dribs and drabs.

But, now that fewer generalist underwriters remain in this space, and boat owners need to engage more fully with insurers and brokers who actually specialize in marine insurance, it is especially important for boat owners to present all the required underwriting information at the outset.

Specialist brokers can really prove their worth by helping to provide the boat’s full underwriting profile to insurers, covering issues like security, hurricane plans and moorage. Working with insurers, they can also help by taking a holistic approach that goes beyond just insurance coverage. This includes providing insights and risk solution services that can potentially reduce premiums.

“It’s always best to put the most challenging aspects up front and to work with the carrier,” says Tom Conroy. “So, be forthright and tell the insurer what you will do to correct the adverse risk characteristics. If we find things out later that should have been disclosed, it will impact eligibility.”

Boat owners are also encouraged to engage in proactive maintenance. Getting engines winterized before winter arrives, and securing boats in advance of hurricanes, are obvious must-dos. But going the extra mile and being a bit creative can pay further dividends.

For example, Casey Matthews refers to an owner from North America who keeps their boat in Florida in a Cat 5 rated dry stack storage facility. This has proven to be a great way of protecting it from everything from lightning and windstorms to theft and the Florida sun.

The potential for adjusting deductibles to realize savings can also be considered. Taking larger ones for hull and windstorm cover could, for example, reduce premiums by 10% to 15% and – just as importantly – might be the difference between being insurable and uninsurable.

“The more we can talk about and engage with the client, the more options the client will have,” says Matt Anderson. “In particular, the tens of thousands of new boat owners brought into the market by the pandemic have presented a number of challenges regarding their experience and familiarity with the usage and maintenance of their boats.”

When Covid-19 started, some owners – especially if they lived away from their boat – found it hard to access their boats in order to maintain them. But this no longer provides an excuse to cut corners with risk management. Having the right plans in place is now fundamental to getting the right insurance coverage or, in some cases, any coverage at all.

Additionally, formulating these plans will make it much easier to react to storms and other incidents when they occur, instead of having to rely on last-minute arrangements.

It’s also important for clients to realize that the risk management process doesn’t stop once they’ve been granted coverage. Plans should be reviewed annually and updated when things change, and brokers and agents need to be informed of any alterations.

“Addressing high-risk issues proactively is essential,” says Tom Conroy. “Even before a boat is purchased, having a conversation with a marine-focused agent can be useful in guiding the purchase and determining what can be insured.”