An excess of capacity, new competition amongcarriers and increased measures against cargo theft characterizethe landscape of the Inland Marine segment, the vast and variedcoverage area that encompasses any type of shipment that does nottravel over an ocean, including fine art and jewelry. 

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A rash of start-ups in Inland Marine over the last three to fiveyears has created a “tremendous amount” of competition in thesegment, says Christine Santiago, vice president for CommercialInland Marine at the Starr Marine Group, one of those new entrants.The company's Inland Marine coverages include Warehouse OperatorsLegal Liability; Domestic Transit; Motor Truck Cargo LegalLiability; Contractor's Equipment; and Installation and Rigger'sLiability.

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Construction and transportation together drive the Inland Marinesegment and account for about 60 percent of its premiums. Somestart-ups might not have had the traditional capacity of theestablished big players in this space, says Santiago, but they havemade inroads into some of the more popular lines or have brought afollowing of clients with them.  

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The fine-art market in particular has almost too muchcapacity, says Jennifer Schipf (right), senior underwriter and vicepresident for XL Insurance: “There's been so much capacity in themarket for the past decade that everyone's been sloppy or generousin giving extra coverage.”

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Fine art is usually insured on a mono-line, standalone all-riskpolicy under Inland Marine and is usually not attached to aProperty policy. However, there are property underwriters who willwrite Inland Marine, including a certain amount of fine art, butthe coverage is more restrictive. “That's why there's a nichemarket for Fine Art coverage,” Schipf says. 

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Inland Marine also is continuing to outperform the rest of theProperty & Casualty industry and has been 10 to 15 points lowerin combined loss ratio than the rest of the P&C segment, saysKevin O'Brien, president and CEO of the Inland Marine UnderwritersAssociation (IMUA). Capacity remains “very prevalent” in themarketplace, as it was in 2011, he adds. What's more, Inland Marinehas recently seen some modest price increases in riskier lines likeMotor Truck Cargo, which is prone to highway accidents; butoverall, “Pricing is stable,” O'Brien says. “In certain lines, likeMotor Truck Cargo, you're getting increases,” he adds, which isalso true for Construction lines such as Builder's Risk andContractors Equipment.

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Motor Truck Cargo Legal Liability has “tons of capacity,” saysAndrea Prahl, a senior underwriter who specializes in marine issuesfor Burns & Wilcox, which underwrites contracts with Lloyd's ofLondon. “Rates have remained fairly stable over the last fewyears.” 

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Helen Leonard, product director for Inland Marine, Americas, atAllianz Global Corporate & Specialty (AGCS) in New York, saysshe is seeing more companies writing Motor Truck Cargo in recentyears to mixed success.

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Two years ago, Leonard recalls, pricing was too low: Now, “weare seeing an uptick; it's trending a little higher,” she says,adding that most carriers have suffered losses in this sector overthe last two years. “They're finding out that they need to increaserates or deductibles—or some combination thereof—and they need toimplement certain warrantees. You can only drive rates down somuch, and then you have to know when to walk away.”

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Many insurance companies exited the Inland Marine market rightafter the 2008 economic collapse because shipping, construction andequipment sales were down, says Bob Opitz, Worldwide Inland MarineManager for Chubb Group: “Now we're seeing either new entrants orpeople trying to re-enter the market. It makes it morecompetitive.”

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Opitz points to the effect of the American Recovery andReinvestment Act of 2009, which provided $787 billion in economicinvestment nationally. As a result, hot areas of Inland Marineinclude housing starts, which he says are on their way back tolevels seen before the economic downturn; infrastructureimprovements, such as road repairs; and construction, mostly incommercial building. 

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Chubb, too, has seen new entries into the marketplace,especially as the economy slowly recovers—not in the volume ofthings being shipped, but in areas where government stimulus moneyis pushing movement, he says.

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“Housing starts are creeping back up, and infrastructure; roadsand repair projects are steady,” says Opitz. “I think a lot of whatwe're seeing is a lot of commercial building. The economy is notnecessarily better but it certainly is improved over a few yearsago.”

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Chubb's Inland Marine business includes construction coverages,like builders' risk, contractors' equipment and installationfloaters; Leased Property and Installment Sales coverages, such ascontingent interest policies in cases where a financier requiresthe financed party to insure the property; Special Propertycoverages, for personal items that require unique protections, likejewelry, fine art, agricultural equipment and electronic equipment;and Transportation coverages, which cover shipments in transit,whether it's traveling by a motor carrier or the insured's personalvehicle.

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In 2012 three new companies threw their hats in the ring:Ironshore Inc. of Boston, and Bermuda-based Argo GroupInternational Holdings Ltd. and Endurance Specialty InsuranceLtd.

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“Companies are coming in and out just like always, but they needthe expertise on the underwriting side, on the claims side and onthe loss-control side,” Leonard says. “Start-ups will write a lotof it really quickly and get lots of business. They want to fill uptheir book quickly. Then they start seeing losses.” 

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CARGO THEFT ON THE RISE

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Current total U.S. cargo losses are estimated to be “in thebillions” but it's tough to determine the actual dollar cost, saysPeter J. Scrobe, vice president of loss control for StarrMarine. 

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From the 1980s through the mid-1990s, cargo theft in the U.S.was estimated at $3 billion in annual losses and internationally at$10 billion, says Scrobe. “Now it's anywhere from $10 billion to$15 billion in the U.S. and from $30 billion to $50 billionglobally, depending on who you ask.”

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Cargo-theft reporting is not an exact science; local lawenforcement will get the report of a loss—perhaps a tractor-trailerhas been stolen or hijacked—and if they find the cab or trailer,they see it as having made a recovery, Scrobe explains. They maynot factor in the stolen cargo. 

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“What people don't know, and our government officials shouldrealize, is the fact that there are probably billions of dollars'worth of cargo and product stolen, and we still don't know theexact number of these goods that are stolen and what and how it'scosting us all,” he adds.

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Organized cargo thieves are flourishing today under three scamtechniques that prey on the U.S. trucking and transportationsystems, making the most of modern technology and easy access toinformation via online industry resources, says Sam Rizzitelli,national director of transportation for Travelers' Inland Marinedivision. Travelers includes in its Inland Marine coverage segmentsclean energy and technology; construction; fine art and museums;transportation, cargo and logistics; communications; manufacturing,distribution and retail; municipalities and education; andspecialized equipment.  

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In ID-theft scams, thieves assume a carrier's identity and useit to “weave themselves into the supply chain,” Rizzitelliexplains. These pirates will peruse online bulletin boards wherefreight shippers advertise loads that are up for bid. The thieveswill bid on a shipment, and show up at the freight shipper flashingfake identification—which appears kosher to the shippingdispatcher—and then disappear with a truckload ofgoods. 

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“The thieves will give the proper address for the supposedtrucking company or carrier, but change the phone number—givingthem a new cell number instead—so the deal seems legitimate,” saysOpitz at Chubb. “Intelligence on these cases is just starting tocome out.” 

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Florida has seen a rash of produce thefts inrecent years by thieves using the ID-theft scam. In many of thesecases, Santiago says, the growers themselves will post a link on anonline bulletin board for a shipment to bid on and the thievesrespond, present fake paperwork, and take off with a load oftomatoes, for example. 

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Fictitious pick-ups are the second type of identification scam.In these cases, the thieves dig up information on when a legitimatecarrier is already scheduled to pick up a load of goods, and theysimply beat the real carrier to the pickup point—usually by 30minutes to an hour—using the carrier's own identity information. Bythe time the legitimate trucker arrives, the goods are longgone. 

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Fictitious pick-ups contain an element of inside help, saysTerri Hileman, claims consultant for the Lockton Companies inDenver. This, she explains, is evident in theft figures for 2012:According to FreightWatch International (FWI), an industry watchdoggroup based in Austin, Texas, more than 78 cargo thefts occurredmonthly in the U.S. in 2012, and 80 percent of those were full-loadcontainer thefts; only 3 percent were half-loads. This indicatesthat the thieves are overwhelmingly stealing preferred, largershipments; they're not just taking whatever cargo they can grab inmost cases. “There's some [prior] knowledge about what is beingtransported,” Hileman notes. 

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Thieves still target pharmaceuticals and electronics. FWI sawtwo “very large” thefts in Georgia in January, says Ron Greene, thewatchdog group's vice president of transportation. “Luckily, thecompany did have good security program in place, and those truckswere recovered very quickly through tracking technology,” headds. 

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The numbers for fictitious pick-ups are on the rise: of the wellover 1,200 incidents of cargo theft in 2012, 67 were fictitiouspickups—but that's up from about 20 or so in 2011. “The numbersremain small, but are rising,” O'Brien notes. 

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Fraudulent-carrier or misdirected-load scams are the leastfrequent cons, Rizzitelli says. In these heists, cargo-theft gangsactually go to the trouble of becoming legitimate cargo carriersjust to steal merchandise. This approach requires the most legworkand dedication: the thieves don't just pose as legitimatecarriers—they get fully licensed; buy all the necessary insurance;procure a tax identification number—and actually haul a few initialloads, gaining the trust of shipping firms around the industry.

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Such fraudulent-carrier schemes are making it harder forsingle-unit truckers to obtain insurance. “Single-unit carriershave fallen under some scrutiny because of this trend,” says Opitz.“It's not terribly difficult or expensive to set yourself up as acarrier and then disappear.”

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FINE ART WORLD'S WAKE-UP CALL

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Superstorm Sandy conquered the fine art world—or at least, theinsurance side of it. The influence Sandy has had is apparent inthe three biggest trends in the Fine Art insurance arena today:aggregate warehouse storage of fine art; preparedness for disastersand changing environmental trends; and understanding valuations andloss limits, says XL's Schipf.

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After Sandy, a number of art galleries in lower Manhattansuffered water-damage claims and have been struggling not only toget their facilities back, but also to restore and reclaim theirartwork, Opitz says. Many of these boutique galleries are “belowgrade,” meaning there are below street level(underground). 

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“Everybody is putting paintings into storage locations, and noone knows how much is in them. That's a huge aggregation concernamong underwriters,” Schipf says.

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Another serious issue in Fine Art losses is valuation: InSchipf's opinion, much of the art destroyed during Sandy wasundervalued. “People didn't appreciate the values of the objects ortheir commercial value until Superstorm Sandy wiped them out,” shenotes. “So many dealers were underinsured.”

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Art is an area in which valuation is critical because dependingon the status of the artist, on any given day it's going to have ahuge impact on the value of the work. “We see wildly fluctuatingvaluations,” says Opitz. “We have to keep a very close eye onthat.”

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Additionally, Fine Art policies don't have an annual aggregate:If a client owns two pieces worth $10 million each, “you could havetwo $10 million losses in one year,” says Schipf. Sandy, she adds,has been a wake-up call for the Fine-Art-underwriting community:“everybody is tightening things up.”

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Storage is another issue. There are a number of very highlyqualified and well-regarded art storage companies in the U.S. andabroad, but the problem is there's simply more art in privatecollections than can be stored, says Opitz.

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“You end up with the potential to have a large quantity ofartwork concentrated in small geographic areas,” he says. “It canbe problematic for carriers if they have a number of customers inthat area.”

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Adds Schipf, “It's a matter of aggregate management: are youcomfortable with tens of billions of dollars of art near eachother?” 

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