Battered by rising gasoline prices and a sinking economy, theinsurance market for small recreational boats is facing roughwaters, while smooth sailing continues for the mega-yacht sector,both brokers and insurers in various sectors of this specialtymarket report.

“Increased gas prices are killing the boat industry,” accordingto Mike Cracco, president of Completely Covered Insurance Agency, aLong Island firm based in Massapequa, N.Y.

Mr. Cracco said he has been receiving requests from boatpolicyholders who want to increase the time their boats are laid upon shore without coverage, which his agency cannot accommodate.

Some owners, he said, are increasing their deductible andadopting the attitude: “God forbid it goes on fire. I'll take thatchance.” Boats, he added, are being repossessed “like crazy,” andare being auctioned by banks.

He reported a tremendous softening in insurance prices, withdouble-digit decreases in some cases.

In the case of a 39-foot boat that he handles, Mr. Cracco said,“This year it's a 20 percent decrease for the same exact boat.”

The economic problems are impacting his marina business as well.He sees them going out of business or cutting back on insurance astheir repair business plummets, as more boaters cut back on usage,and less of them need to be towed in.

Steve Ruchman, a past president of the National Association ofProfessional Insurance Agents and president of Ruchman AssociatesInc. in Rockville Center, N.Y., said he does not see ratesdecreasing by 20 percent, but acknowledged that insurers are nowvery competitive for boaters' business.

Insureds who shop can easily steer their way to a good deal, hesaid, adding that competing companies may not be advertising lowerrates, but they “do whatever [it takes] to get the price down” andare very creative in offering deals.

If they are unable to lower the premium, Mr. Ruchman saidcarriers will negotiate on coverage terms and conditions, withareas of discussion including lay-up periods, permitted navigablewaters and towing.

In addition, the more electronic navigation equipment an ownerhas, the more premium credits a carrier is generally willing togive, he advised.

Howard Reif, with Sullivan and Strauss Agency in New Hyde Park,N.Y.–which trades as SkiSafe–said companies that left the marketafter the extensive boat losses from the hurricanes of 2005 are nowback in. “They have a short memory,” he quipped. He said he hasseen ACE, Allstate, Nationwide, Progressive and Zurich all show agreater appetite for business.

Meanwhile, Mr. Reif said the competitive challenges in thesmall-boat insurance market are increasing because of plunging boatsales. Purchases are down 20 percent, he said, adding: “I don't seeit getting better.” Making matters worse, he added, is the factthat “we are at a point with more boats for sale than I have seenin the last 15 years.”

He remarked that “there has been a drastic credit crunchaffecting the recreational marine market in a bad way,” with loansfor boat purchases hard to come by and many who took out loans tobuy boats going into default.

All this translates into a smaller marketplace for the insuranceindustry, according to Mr. Reif.

“Generally speaking, insurers who specialize in boats are seeinga significant drop in business this year,” he declared, noting thatrates are particularly soft for boats located on inland lakes orrivers.

However, for big boats–those mega-yachts that measure 100 feetor longer and cost $5 million or more–it's a very differentstory.

Sean Blue, yacht director for the AIG Private Line Group inSeattle, said that for such maritime heavies, “there is a largedemand and a high waiting list at some of the larger yachtshipyards.”

The competition is limited among carriers who take on suchrisks, he said, because “not many can insure a $100 millionyacht.”

He said the AIG private line yacht sector is six years old, andretention of clients has been very good, as has growth, noting thatthe company is adding staff and products.

“We expanded into the European market and have offices in Dubai,Sydney, Hong Kong and London,” he said.

One of the risks involved with mega-yachts ispiracy–particularly in Southeast Asia, according to Mr. Blue, whosaid AIG checks the owners' security precautions for those waters,pointing out that some are shadowed by security boats.

Mr. Ruchman said the boating endeavors of the rich are notaffected by gas prices.

Indeed, while small boaters are traveling shorter distances andspending most of the day at anchor, he noted, when the topic ofgasoline came up with one of Mr. Ruchman's clients who recentlybought a $500,000 boat, the owner said, “'I'm not concerned about[gas prices].' His yacht club squadron is part of his sociallife.”

Mr. Reif would agree. Indeed, after cataloging the difficultiesin the small-boat market, he remarked that “most of this does notaffect the 100-foot plus mega-yachts.”

At Travelers, Chantal Cyr, vice president of personal insurancefor boats and yachts, said her company, unlike some others, has hada long-term involvement with the small-boat market. She said therehad been four new entries this year.

The competition, she said, has led Travelers to review segmentsof the boat market that it had not written in the past.

Ms. Cyr said the company has been busy working with agents tohelp them develop new leads from boating registration lists, aswell as urging them to cross-sell auto and homeowners books withboats.

She said the company has also sponsored three large boat showsin the Midwest, as well as salmon fishing derbies in the Seattlearea. “The Midwest and West Coast is definitely where everyone islooking to grow,” she declared.

Still, the market for small-boat insurance is tough, sheconceded, noting that in the current down economy, “people arethinking long and hard” before they buy a new boat.

Ms. Cyr observed that in the past, many had used the surplusequity in their homes to buy boats, “but with declining housingprices, it has affected the sale of new boats.”

Making matters worse is the fact that fuel prices at the dockare always higher than on the highway, while the miles-per-gallonfor boats is generally far worse than the most gas-guzzlingvehicle, she added.

Ms. Cyr said the gas price impact has caused owners to use theirboats differently, noting that they are not “going fullthrottle.”

Neither is the boat insurance market, she might have added.