The Great Recession was expectedly rough on boat sales, whichsaw widely reported declines of 50% or more in revenues as theeconomy sunk. However, that tide is now turning—and producers whounderstand the exposures can make hay by writing coverage on newwatercraft.

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Sales of recreational boats (up to 26 feet in length), whichaccount for 95% of craft on the water, were up about 10% in 2014.Sales of yachts (over 26 feet) were reportedly flat compared to2013, but brokers and underwriters report smoother waters in thelarge-craft sector than in recent years.

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

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“We’ve heard some good things at boat shows in terms of salesbeing made,” says Todd Shasha, managing director in Travelers’personal insurance boat and yacht division. “We’re also seeingincreases in values across the board—larger outboard motors, centerconsoles increasing in size, some nice new features in vesselscoming into the market.”

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There is plenty of capacity waiting to insure new watercraft,says Gaffney: “Insurance carriers are very keen to accommodateowners, whether it be granting variations in navigationlimitations, coverage for tenders, and other requests, in any waythey possibly can, which is a good thing from our and the client’sperspective.”

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

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One of the new entrants in the mega-yacht marketplace isIronshore, which in October 2014 introduced a Luxury Yachtinsurance program to provide cover for U.S. owners. Although thecompany had previously offered the ability to add smaller yachtsand boats to its homeowners form via endorsement, the new programoffers a stand-alone, customized policy for high-end luxury yachtswith hull values of between $750,000 and $10 million and is writtenon an admitted basis in the U.S. through Ironshore IndemnityInc.

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

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“The policies we’ve written initially have centered on new boatsbeing purchased, and not so much remarketed policies that existwith other carriers. That bodes well for the overall business,” hesays.

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Existing marine specialists have expanded their offerings aswell. In October 2014, Travelers released updated versions of itspolicy forms, with broader limits and enhanced coverages: the QuayMarine Agreement for vessels valued between $1 and $50 million, andthe Quay Yacht Agreement for vessels valued from $250,000 to $1million. Highlights include that ocean cargo liability coverageremains in place during ocean cargo loading, unloading andtransportation and, to assist insureds in complying with MaritimeLabor Convention 2006, crew repatriation in the event of insolvencyis now included as an additional $50,000 limit of coverage.

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Calm Seas in Claims

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

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

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In the recreational boat sector, loss experience has likewisebeen good. “We have seen that the increase in boat sales did notcorrelate with an increase in claims, in part because we didn’t seea big increase in the actual use of boats due to poor weather andhigh gas costs during last year’s boating season,” says EdCharlebois, Travelers’ vice president of personal insurance. “Infact, we would see people spending their weekend at the marinabecause they didn’t want to take their boat out.”

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

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Breaking into the boat market

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The high-net-worth owner of a large yacht has specialized needsand 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 stiffheadwinds.

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

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Alternatively, more wide-ranging opportunity can be found in therecreational boat market. “Since most of the boats on the watertoday are less than 27 feet and are trailered units, many boatowners will just call their local agent for coverage,” saysLoos.

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

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By building experience with mid-sized crafts and having accessto the right market resources, brokers can position themselves tobreak into the large-craft market. “There are thousands of agentsacross the country who do boat insurance very well, and if they runinto a bigger vessel or a more complicated situation, we can helpthem,” says Charlebois.

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

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