First, the good news: Inland Marine remains a desirable line of business.
Because of low losses for the past several years and high premiums, many carriers see its appeal and are getting into the game.
But there's bad news: Additional players have brought a lot of capacity to the marketplace, and the line has been soft for several years, contributing to a buyer's market where insureds shop around.
In addition, some areas of Inland Marine are tough to write, such as long-haul Auto Physical Damage, where claims costs are high and brokers have fewer markets to turn to for coverage.
“Worthy accounts that are well-managed with good track records are still seeing some pricing reduction, while less worthy accounts are holding the line,” says Dan Folkes, associate vice president of special property and inland marine at Nationwide. “You have to sift through the management of those risks and determine if it fits within your appetite.”
Construction's stability and transportation's losses
Inland Marine can be divided into two segments: construction — which includes Builders’ Risk and Contractors’ Equipment coverages — and transportation, which covers Motor Truck Cargo, Auto Physical Damage, Warehouse Legal Liability and the catchall “floating property.”
Overall, the general class of Inland Marine is stable, executives say. “We are not subject to large (catastrophe) events like hurricanes and flooding,” says Chris Giadrosich, Inland Marine manager at Colony Specialty. This especially holds true in transportation, where cargo can be moved into protected areas. “We don't have [rate] fluctuations based on acts of God.”
A recovering economy means an increase in construction activity. The market has seen an increase in general building construction as well an infrastructure repair. Builders’ Risk and Contractors’ Equipment “make for a brimming marketplace, with a lot of opportunities for underwriters.” Folkes says.
Nationwide tends to be “middle of the road” in terms of appetite, Folkes says. “We don't get involved in the real sophisticated or high-risk parts of the business. We tend to stay with the construction-related Inland Marine coverages, like Builders’ Risk and Contractors’ Equipment. We prefer ground-up construction.”
However, with the influx of new markets, “Builders’ Risk rates have gone through the floor,” says Giadrosich. “Contractors’ Equipment is still relatively competitive, but it has taken a 1 percent to 2 percent increase for renewals. But there is so much capacity out in the marketplace, it's easy to shop around [for a better rate].”
Bob Opitz, senior vice president, Inland Marine manager for North America Commercial Insurance at Chubb, says that water damage is currently a frequent cause of loss in Builder's Risk. Water damage sources may be internal to the building or related to weather or other external causes. “Identifying the sources where water can come from is one of the issues that underwriters have to evaluate,” he says.
According to the recent Chubb report, “Builders’ Risk: Water Damage or Flood,” insureds too often do not recognize the differences in policy wording that distinguish between water damage, flood or storm surge. An insurer with experience in the construction industry can proactively offer water damage solutions that mitigate specific risks.
The transportation segment is enticing to write in Inland Marine, as it generates large premiums, particularly with Motor Truck Cargo. However, it also is where losses are likely to occur.
Look at the big picture for perspective. “Most carriers are struggling with their Auto line,” Folkes says. “Gas is cheap, and there are a lot of people driving, contributing to traffic and accidents.”
One line of coverage with profitability issues is long-haul Auto Physical Damage, an area that has become more difficult to place in recent months. According to Shawn Samuels, area vice president at Risk Placement Services in Atlanta, “when drivers are traveling more than 500 miles at one time, the chances for losses can increase. Factors such as weight, driver fatigue and lack of route familiarity all contribute to losses in this category.”
Additional carriers have brought more capacity to the Inland Marine market.
More coverages, value adds
Carriers are seeing changes in the types of coverages that insureds request, such as “design-error coverage,” also called LEG 3, which started in the London market. “As an underwriter, there may be circumstances where you are willing to expand that, but you must have the expertise to understand the exposures that come with that type of request,” Chubb's Opitz says.
Opitz says that Chubb also is seeing more requests for the general contractor to assume contractual obligation for some of the additional costs usually taken care of by the owner, such as in the case of a project delay.
In Inland Marine, agents and brokers are working to build coverage for fraud, deceit and employee dishonesty into products such as Contractors’ Equipment, Auto Physical Damage and stock throughputs, Samuels says.
“You can have employees collude with each other to steal equipment, cargo, etc., and make it look like an outside theft. As an insured — the person who owns that transportation company — your Inland Marine policy will typically not cover you for fraud and dishonesty, so these losses could be out of pocket, depending on your crime policy coverages,” he says. “This is a way to build coverage into an Inland Marine policy for things that might be excluded or covered elsewhere.”
Related: Smooth sailing in Inland Marine
To stand out as a knowledgeable resource in Inland Marine, agents should sell their ideas around risk management, and they should involve the carrier, Folkes says. “If you have a carrier that is willing to take on the expense of thorough and meaningful loss-control work, that is a huge value-add for agents and brokers to sell.”
“It's a tough market, due to competition and because insureds are market-savvy,” says Giadrosich. “Loyalty is lower now than it has been in the past; we have educated our insureds to shop and not accept the first number in every time. And it bears repeating: As much as I’ve heard throughout my career that this is a relationship business — it really is.”
Looking ahead: Drones, automated cars to change exposures
Several emerging technologies could affect the status quo. The use of drones is expanding rapidly in the commercial market — and Inland Marine is no exception.
In March, ISO created Inland Marine insurance forms to protect businesses from the costs of potential crashes, including damage to drones, their equipment and their cargo. At the time, Doug Kahn, director of commercial property product development for ISO, said “Drones are mobile in nature, can be of high value and contain specialized equipment — making them ideally suited for coverage under commercial Inland Marine insurance.”
“Certainly, driverless cars aren't out in the market yet,” Opitz says. “But those types of exposures are things we will see more and more in the Inland Marine space. Underwriters need to be prepared to evaluate these exposures in the future.”