The Great Recession was expectedly rough on boat sales, which saw widely reported declines of 50% or more in revenues as the economy sunk. However, that tide is now turning—and producers who understand the exposures can make hay by writing coverage on new watercraft.

Sales of recreational boats (up to 26 feet in length), which account for 95% of craft on the water, were up about 10% in 2014. Sales of yachts (over 26 feet) were reportedly flat compared to 2013, but brokers and underwriters report smoother waters in the large-craft sector than in recent years.

“In the mid-range—vessels from 60 to 90 feet—there is definitely an uptick in sales and an increase in vessels scheduled to come off the [assembly] line,” says John Gaffney, senior vice president and yacht practice leader within Marsh Private Client Services. “With mega-yachts over 100 feet, we have seen delivery times being extended, which is normally a very good indicator that yards are busier than they had been.”

“We’ve heard some good things at boat shows in terms of sales being made,” says Todd Shasha, managing director in Travelers’ personal insurance boat and yacht division. “We’re also seeing increases in values across the board—larger outboard motors, center consoles increasing in size, some nice new features in vessels coming into the market.”

There is plenty of capacity waiting to insure new watercraft, says Gaffney: “Insurance carriers are very keen to accommodate owners, whether it be granting variations in navigation limitations, coverage for tenders, and other requests, in any way they possibly can, which is a good thing from our and the client’s perspective.”

Since catastrophic weather events in the U.S. were down last year, it’s doubtful that rates will be on the rise, says Kim Loos, personal lines underwriting, American Modern Insurance Group. Casualty insurance rates, he says, are expected to decrease as carriers fight for favorable classes of boat and yacht business: “Only slight renewal increases are possible due to the number of carriers in the market.”

One of the new entrants in the mega-yacht marketplace is Ironshore, which in October 2014 introduced a Luxury Yacht insurance program to provide cover for U.S. owners. Although the company had previously offered the ability to add smaller yachts and boats to its homeowners form via endorsement, the new program offers a stand-alone, customized policy for high-end luxury yachts with hull values of between $750,000 and $10 million and is written on an admitted basis in the U.S. through Ironshore Indemnity Inc.

“We believed a standalone form was a good fit for our overall high-net-worth strategy,” says James Bishop, Product Manager of Ironshore’s Yacht unit, who spearheaded the product’s development effort. Although it’s too soon to cite specific growth figures, Bishop has seen encouraging signs.

“The policies we’ve written initially have centered on new boats being purchased, and not so much remarketed policies that exist with other carriers. That bodes well for the overall business,” he says.

Existing marine specialists have expanded their offerings as well. In October 2014, Travelers released updated versions of its policy forms, with broader limits and enhanced coverages: the Quay Marine Agreement for vessels valued between $1 and $50 million, and the Quay Yacht Agreement for vessels valued from $250,000 to $1 million. Highlights include that ocean cargo liability coverage remains in place during ocean cargo loading, unloading and transportation and, to assist insureds in complying with Maritime Labor Convention 2006, crew repatriation in the event of insolvency is now included as an additional $50,000 limit of coverage.

Calm Seas in Claims

In this high-value line of business, claims severity is the key concern; however, the fact that larger yachts are fully crewed is a significant mitigating factor to the risk of major loss.

“A $1 million-plus vessel will typically have a crew to monitor and maintain it,” says Lisbeth Ryan, managing director of Travelers’ Luxury Yacht Group. Over the last several years, she adds, “we haven’t experienced any major events that would affect Travelers’ luxury yacht segment.”

In the recreational boat sector, loss experience has likewise been good. “We have seen that the increase in boat sales did not correlate with an increase in claims, in part because we didn’t see a big increase in the actual use of boats due to poor weather and high gas costs during last year’s boating season,” says Ed Charlebois, Travelers’ vice president of personal insurance. “In fact, we would see people spending their weekend at the marina because they didn’t want to take their boat out.”

However, that trend may not hold into 2015. “With the improvement in the economy and decreasing fuel costs, we expect to experience an increase in use-related claims due to increased units and increased operators with less experience,” says James Grimm, physical damage and recreational products examiner at American Modern.

Breaking into the boat market

The high-net-worth owner of a large yacht has specialized needs and concerns that require a customized risk management solution. Because of the specialization required to serve those clients, agents and brokers trying to sail into the sector can face stiff headwinds.

“The large-yacht market has always been a very niche market dominated by those producers who have been in the line for quite some time. It’s hard to break into,” says Bishop.

Alternatively, more wide-ranging opportunity can be found in the recreational boat market. “Since most of the boats on the water today are less than 27 feet and are trailered units, many boat owners will just call their local agent for coverage,” says Loos.

“Agents looking to seek out new business can be exhibitors at local boat shows. These events are good places to meet current and new boat owners. Also, developing relationships with local boat dealers and/or marine financing companies can be a good lead generator as well,” he says.

By building experience with mid-sized crafts and having access to the right market resources, brokers can position themselves to break into the large-craft market. “There are thousands of agents across the country who do boat insurance very well, and if they run into a bigger vessel or a more complicated situation, we can help them,” says Charlebois.

Observers expect boat sales to continue their recovery through at least the next operating season. “From where we sit right now, everything looks pretty positive and we are optimistic,” adds Gaffney. “There’s a strong possibility we will see a double-digit increase in business in 2015.”

Special Reports /

Charting the course: Watercraft reversal spells coverage opportunity

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