The inland marine pie may be shrinking as two major targetindustries–trucking and construction–struggle in the currenteconomic crisis. But at the same time more players are fighting fora slice, keeping competition fierce and the market soft, experts inthe field report.

Those queried forthis article agreed that new entrants continue to look for growthopportunities, even as construction projects struggle to getfunding and lack of shipping demand forces trucking companies tocut operations or go out of business.

“The marketplace in inland marine continues to be competitive,”said Joseph Tracy, president of Travelers Inland Marine. “Peoplehave seen the profits of inland marine over time, and there havebeen new entrants, which fuels competitiveness.”

In this regard, the marketplace is similar to what it was a yearago. A National Underwriter analysis of the market lastApril focused on struggles in the two major inland marine lines,while competition continued and even increased, and Mr. Tracyremarked how that analysis could still be relevant if it waspublished today.

But while the overall circumstances are similar, some detailshave changed. For example, last year, soaring fuel prices were thesource of trucking company hardships. And while those companies arestill struggling, fuel costs are not a factor.

Last year, diesel prices hit $5 per gallon, recalled SteveSilverman, vice president of inland marine for Bermuda-basedHiscox. This drove up expenses, which hurt trucking companies, eventhough revenues were high and truckers were still getting a lot ofloads.

Now, Mr. Silverman noted, these companies are dealing with aproblem that is essentially the opposite–expenses are lower as fuelcosts have abated, but with the current recession shipping demandsare down and revenues are weaker.

Mr. Tracy noted that the slowdown in shipping volume, and theresulting impact on receipts of trucking operations, leads to lesspremium for insurers, as receipts is a typical basis on which todevelop coverage prices.

Lower revenues could also lead to risky cost-cutting measures bytrucking companies, Mr. Silverman warned. He said when shipping isdown, some companies looking to save money cut back on riskmanagement and loss prevention. For example, he noted, somecompanies will skimp on preventative maintenance, which couldincrease loss experience.

Crime is an additional problem affecting truckers, according toMr. Tracy. He said because of the weak economy, some people look toprofit from illegal activity, and robbing cargo from truckingcompanies is one way to do that.

In general, Mr. Tracy said factorsaffecting trucking could be seen as a three-legged stool consistingof fuel prices, shipping volume and crime. At the moment, he noted,two of the three factors are adversely impacting the companies.

But Mr. Silverman said while there are trucking companies goingout of business, there remain many companies that are healthyfinancially. Overall, he said, trucking remains an attractivebusiness for insurers–although maybe not as much as before, becauseloss experience has deteriorated somewhat.

Speaking to construction, experts agreed the sector continues tostruggle, particularly on the residential side, which Mr. Tracycharacterized as “still in decline,” without much movement on thehousing front.

John Tutera, vice president of construction property for Hiscox,said he believes demand for rental houses at least will pick upsometime soon.

Over the last nine months, he said, he has seen clients tryingto find ways to buy risk protection “economically.” Clients wantprotection, he said, but don't have much to spend, so somecompanies are choosing to retain more risks.

Jayne Honeck, assistant vice president of inland marine at CNA,spoke to the uncertainty in the construction market overall, notingthat every month there are signs the market will turn for thebetter, but those signs never seem to pan out. She said there areprojects still ongoing, while others are being completed, but thereare fewer of them.

Some new construction projects are having a hard time gettingfinanced, she said, while existing projects cannot secure financingto continue. This means there are fewer risks to go around, andinsurers are “really hungry for desirable accounts.”

Ms. Honeck said underwriters are “burning the candle at bothends and in the middle” to attract business–lowering rates, cuttingdeductibles, offering better catastrophe terms and paying highercommissions to producers.

Catastrophe areas are particularly competitive with respect topricing, according to Ms. Honeck. “It's like [insurers] forgot allabout the fact that hurricane season is about to start,” shesaid.

Areas within construction that have not softened, Ms. Honecksaid, are more complex risks that involve in-depthunderwriting–projects that are not simply “four walls and a roof.”These include work on bridges and tunnels, and even risksassociated with alternative energy, such as wind farmconstruction.

For commercial construction risks, there is hope that therecently passed federal stimulus package will get projects ontrack, but most experts agreed it is still too early to tell whatthe impact of the additional federal investment will be.

Only a small part of the stimulus is going towardconstruction–in particular, updating infrastructure, Mr. Tuteranoted.

Ms. Honeck added that it is hard to tell if the stimulus ishaving any effect yet, though she said everyone is expecting it tohelp by injecting new lifeblood into the sector. “My impression isI'm not seeing more [infrastructure projects] than a year ago, ortwo years ago,” she said, but is continuing to see ongoingprojects.

But Mr. Tracy said he is beginning to see infrastructure projectbids and orders to bind infrastructure-type projects, adding thehorizon looks like it could be brightening.

New entrants in the construction segment and throughout theinland marine market are contributing to continued competitivepricing, but experts generally agreed these newer arrivals do notrepresent what was once called na?ve capital, instead displaying alevel of expertise and entering the market with eyes wide open.

Ms. Honeck said companies that have come into the market sincelast year have gotten stronger, are staffing up in more geographicareas, and are continuing to pursue inland marine risks.

Mr. Tracy said new entrants' inland marine operations aretypically headed by well-respected individuals and bring soundunderwriting talent to the marketplace. Speaking to their pricingstrategies, Mr. Tracy said that “clearly they have goals in termsof revenue, just as we do.”

New companies have not been “flooding in” to the marketplaceover the last year, the way they had been previously, according toPat Stoik, vice president and global commercial inland marinemanager at Chubb & Son, but carriers are still lured to inlandmarine by the market's historical profitability.

He said companies that are struggling in other lines are lookingfor areas where they can make money. They see the historicalprofitability of inland marine, he explained, and try to tap intoit.

Speaking to the underwriting quality of the new entrants, Mr.Stoik said it is hard to make a general statement about allcarriers that enter the inland marine market.

He said the only general statement he can make is that the newentrants are not necessarily bringing anything new to the table.Mr. Stoik said they are just additional players in the marketplace,with some acting more responsibly than others in terms of pricingand underwriting.

The effect of these new entrants, Mr. Stoik observed, has beensome inconsistency in the marketplace. He said one day there willbe extreme competition for a given type of risk, but the next day,a similar risk in a different geographic area will be morereasonably priced. But generally, he said, there have been moreexamples of extreme pricing than reasonable quotes.

Hiscox is one of the recent entrants into inland marine. Mr.Silverman said the company put together its systems and forms inNovember 2008, and started writing business in January of thisyear.

But those behind the company have years of experience in themarket. Mr. Silverman, for example, joined Hiscox fromAIG/Lexington, where he was responsible for inland marine andspecialty property business in the U.S. and Canada.

Mr. Tutera also joined Hiscox from Lexington, and has more than35 years of experience in the insurance and constructionindustries.

Mr. Silverman said Hiscox feels it has an opportunity to write awide variety of inland marine business, adding the company bringsexpertise as well as a well-capitalized player to the market.

Hiscox saw an opportunity to get into inland marine, Mr.Silverman noted, because buyers have expressed some frustrationwith the lack of experience among insurers–particularly smallermarkets that have been overly aggressive. Additionally, he saidsome existing players are struggling from a financial standpointdue to the strains in the capital markets.

Hiscox's strategy, according to Mr. Silverman, is to selectcertain sectors within inland marine and be a go-to market in thoseareas because of the company's expertise and quality of forms.

Overall, the health of the inland marine market varies by line,Mr. Stoik said, adding he still views the sector a healthy place tobe, from his perspective.

Mr. Silverman described himself as “bullish” about inlandmarine, conceding that while he would like to see the economyimprove, the market is “still very attractive.”

Mr. Tracy said it is difficult to speculate on where the marketis heading in terms of pricing, but he said he is “hopeful that wesee a flattening [of rates]” by 2010.

However, he added he is not willing to claim that all issues inthe marketplace will be resolved by then.