While rates have been generally flat in the Inland Marinemarketplace in 2015, premium growth continues as the slowlyimproving economy drives exposure increases — and overall, the lineremains profitable.

In fact, Conning's 2015 Midyear Inland Marine Segment Reportnotes the estimated 2014 combined ratio for the line is an enviable83, and notes the last time Inland Marine posted an underwritingloss was back in 2001. This consistent profitability — even throughperiods of economic turmoil — has not gone unnoticed, and over thepast several years new entrants have brought plenty of competitioninto the space, exerting pressure on rates.

Despite challenges in the insurance marketplace and in insureds'industries, the slowly improving economy means Inland Marine isstill a good market for insurers. The Conning report says netpremiums written grew 8% in 2014, after increasing 5.7% in2013.

“We may not have the margins of five or 10 years ago, but profitis improving and we're still growing,” says Andrew Cadelli, vicepresident for Inland Marine at CNA. “That trend is still going.”Pricing, he says, may be lower in some instances, but ratereductions that do occur are being offset by companies gettingbetter terms and conditions or higher deductibles.

Ultimately, success in Inland Marine comes down to an effectiveportfolio-management strategy, says Cadelli — balancing tougherlines like Construction with some of the more specialized lines.For those who get it right, he says, the line remains “moreconsistent than any other line of business I've seen.”

But as tempting as the steady overall profits are, succeeding inany of the various lines that make up the Inland Marine marketplacetakes a certain level of expertise — and those newer competitorsthat do stick around end up in a battle with existing players forthe necessary expertise, making the overall talent shortage in theinsurance industry more acute in this sector.

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“It used to be you had a lot of concentration of expertisewithin given companies,” says Cadelli. “Now the talent is fracturedand split all over the marketplace at a lot of smaller firms.”

A pool of talent is being traded back and forth as underwritersbecome opportunistic or they find these new markets willing to payabove market value, he explains. “Major carriers are spending topdollar for this talent and, as we've seen in other areas, it is apractice that is not sustainable for the long term.”

Cadelli says CNA goes to the marketplace for talent if the rightexpert and culture fit is available, but the company focuses muchof its energy and resources on developing its own talent throughits training program. CNA's top experts, he says, train the newwave, creating an internal talent pipeline.

Still, developing talent in-house does not make a companyentirely immune to the battle for expertise in the Inland Marinespace. “If you ask anybody sitting in an Inland Marine role in anycompany what their largest challenge is, it's disruption tobusiness—business continuity due to turnover. I think there arevery few companies that don't experience that,” Cadelli adds.

Role of new capacity

Construction and trucking are the dominant Inland Marine lines,and when new capacity enters the marketplace, those two areas tendto be the initial focus. “Trucking is probably the most common,”Cadelli says, noting that cargo, auto physical damage andhigher-hazard construction lines are generally the entry points fornew players with no existing Inland Marine infrastructure, productsor distribution — which make up the majority of the new capacity hesees coming into the marketplace. He says these carriers try to doa good job underwriting tougher accounts in those lines to gettheir foot in the door, amass scale and build relationships beforemoving into other more specialized lines.

Dan Hooker, Bellingham Underwriters, a division of ArrowheadGeneral Insurance Agency Inc. that specializes in trucking,describes the capacity he is seeing in the cargo space: “It seemsthere are more competitors in the space and the rates they arecharging are cheaper than in the past. Additional competitionincludes new admitted U.S. products and Lloyd's syndicates withcapacity for higher limits motor truck cargo, Inland Marine andcontractors' equipment placements.”

Hooker says Bellingham also underwrites Auto Liability fortruckers but new competitors and new carriers are wary of the AutoLiability associated with trucking risks. They are more interestedin the cargo and other Inland Marine sectors, and rates are morecompetitive for those lines.

Cadelli agrees, stating that, for cargo, “Pricing and marginsthere are the lowest of any product line I have.”

Competition may be most pronounced in the largest Inland Marinelines, but it's not limited to those spaces. Don Fiorini, BusinessDevelopment, OnPoint Underwriting, a division of Arrowhead,specializes in logging equipment, and says he's seeing newcompetitors. He notes that it's a 50/50 split between existingplayers branching out into logging and new competitors trying tobreak in.

Joe Tracy, president, Travelers Inland Marine, says,“If there's one thing that's always a constant in our space, it'scompetition — people getting in, leveling off and leaving.” But theprofits that lure companies are not easy pickings, there foranyone. “You can look from the outside in and say, 'That seemseasy,' but once you get in, and you want to be committed to it, youhave to go all in. You have to have laser focus on who you want tobe; you have to understand the clients, understand the brokers whoservice those clients, and speak the language not just ofinsurance, but of the industry you're insuring so you're credible.You can't dabble.”

Once that reality sets in, new players will either make thatcommitment or exit. “Some people get it and want to invest,” Tracyadds. “But the vast majority want the quick hit and will maybe usethe Inland Marine opportunity to offset some of their othershortfalls and balance their portfolios. As soon as the tide turns,they'll look to bigger opportunities, divest from investing furtherin Inland Marine and move on.”

Value through service

As in many insurance and reinsurance lines, successful InlandMarine players are differentiating themselves by providing expertservices in addition to capacity. In cargo, Cadelli says CNA uses aselect group of producers because they take a consultativeapproach, offering on-call safety managers and working withinsureds to improve safety standards and security.

Travelers, meanwhile, has a dedicated cargo theft specialinvestigation group that works with insureds. Tracy says in thepast five years, the group recovered more than $30 million instolen goods for insureds. “That doesn't even include preventativemeasures this group of experts have shared with clients to preventthefts,” he adds. Travelers also provides risk-control services intrucking and construction to help insureds address talent shortagesin those industries—workers in construction and drivers intrucking.

Hooker, speaking from a managing general underwriterperspective, says Bellingham has to differentiate itself in theeyes of insurers, as carriers are scrutinizing MGUs more than inyears past. “Bellingham Underwriters has two separate clients weserve in the managing general underwriting arena: the retailersseeking a quote for their transportation risks and carriers who areseeking an underwriter to act as their distribution source,” henotes. “If we don't make a profit for our carriers, we won't bearound very long.”

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