Navigating the recreational boating insurance market

There are four keys to success in the recreational boating market:

• Properly evaluating your market potential.
• Identifying, learning about and selecting your insurers.
• Building a marketing and prospecting plan that fits your insurers' appetites and needs.
• Retaining business with sound loss-control advice and claims management.

Evaluating the market potential

The marketing of recreational boating insurance is certainly regional, and finding business in coastal areas and around the Great Lakes is not particularly difficult. But even in areas not considered prime boating territory there is significant opportunity for agents who recognize the potential for boat-insurance sales and develop effective business plans.

Knowing the potential market is one key to success. Start by evaluating your existing client bases. What are your clients' hobbies and recreational activities? What are their income levels? High-income clients are often the ones with the bigger toys. They may own second homes or lake property, along with expensive boats or recreational vehicles. Even if the homes and boats are situated away from where the policyholder resides, this property still needs to be insured-and the hometown agent is usually the preferred agent. Is your agency located in an area that supports large numbers of sportsmen and outdoor activities, or in an area with marinas, large sporting outfitters and other retail outlets selling boats? If so, develop contacts with such businesses, which can lead to boat insurance prospect referrals. Obviously, in an area where fishing is popular, there are bass boats and other fishing vessels to insure, and they typically are purchased and serviced locally. Lakes of all sizes support fishing and sail boats, and large lakes or rivers mean powerboats, pontoons and house boats-all representing sizable monetary investments that may create special insurance needs for their owners. Again, contacts in retail outlets can be invaluable in helping you develop or expand such business.

Once you have your marketing plan and have identified your customers, you need to call upon your special business and service relationship with your insurer. Having a strong relationship with a good carrier will help ensure that you obtain the right coverages and support needed for your client, along with a competitive price.

Does a separate policy make sense?

A critical decision is determining whether a customer's boat should be added to an existing homeowners policy or insured under a separate boat-insurance policy. To make the right decision, an agent must completely understand the homeowners insurer's position concerning boats. Does the carrier provide separate coverages and limits for boats (physical damage, medical payments, liability) when added to the homeowners policy, or is coverage subject to the homeowners limits? If the latter, those limits might be insufficient. What is the insurer's position when a loss occurs? Are watercraft or boat losses charged against the homeowners policy's loss experience? If so, adding a boat to an existing policy is not necessarily in your client's best interest. In today's market, many companies are taking tough stands on this issue because of adverse loss experience. Also, does the homeowners policy or added endorsement provide the proper coverages for the exposures associated with boats? Homeowners policies are written primarily to cover losses associated with a home, while boat policies provide coverage more customized to the risks of recreational watercraft.

Criteria for selecting the right insurer

If adding a boat to an existing homeowners policy is not in the client's best interest and a stand-alone policy makes sense, then which insurer should be used? When contemplating standard markets, determine whether they handle boat insurance as a sideline or treat it as a true specialty. Does the insurance company offer programs specifically designed for watercraft? Does it offer loss-control service and have marine underwriters and claims specialists?

In addition to standard markets, you may want to consider specialty or niche insurance companies that focus on watercraft and recreational coverages. These insurers frequently offer unique or specially tailored products along with support services for the agent and boat owner, usually at competitive premiums. Whether selecting a standard or specialty carrier, consideration should be given to more than coverage and price. Does the carrier have a knowledgeable, qualified staff that can provide safety and loss control information and assistance to the agent?

Understanding the company's claims philosophy and loss handling approach is important. A key is whether specifically trained marine adjusters and claim specialists handle the losses. Too often, marine losses are not handled correctly, which results in overpayment of losses, or payment for normal wear and tear, not accidents. The result is unfavorable loss experience. Further, many insurers don't adequately pursue salvage and subrogation recovery where appropriate on settled claims, again resulting in unnecessarily high losses. Rate stability is another important factor. It results from sound underwriting, loss prevention and claims handling. An underwriter's familiarity with all aspects of a boating risk, including driving records (MVRs) of the owner and operators, is critical to proper risk selection and rating.

Accessibility and ease of doing business is another important element in selecting an insurer. The carrier's field rating, underwriting and submission processes need to be user-friendly and highly automated for maximum efficiency, since most boat-insurance premiums are not large.

Also, evaluate how much training insurers offer. Find out if they provide seminars, CD-ROM training programs or Internet-based training. An agency's success in writing boat insurance depends on how knowledgeable and well-trained its own staff is, as well as on the quality of a carrier's support.

The application process

Submitting properly completed applications with correct underwriting information enhances the agency's relationship with the insurer and helps ensure speedy risk evaluation and policy issuance. This is critical because it often is necessary to quote and bind boat insurance on short notice. Calls for coverage right before weekends and holidays occur more often with boat insurance than with most other personal-lines products. A fast, efficient underwriting and binding process can assure a good relationship with a client-and a happy client is a retained client.

Agency employees who are responsible for getting quotes and completing applications need to be familiar with the different types of boats and watercraft. Often, employees don't know the difference between an inboard/outdrive cruiser and inboard cruiser, or between a bass boat and a runabout. The number and horsepower of a boat's engines, as well as a boat's weight and speed, are all critical, as is how a carrier defines the various classes of vessels. How and where the boat will be used is also important.

Understanding the coverages and being able to explain them to the customer is essential. Agents frequently are asked whether personal effects are covered and, if so, to what limit. Agents also should be prepared to explain such matters as whether coverage is for actual cash value, replacement cost or stated value; and what the insurer's options are at claim time for repair versus replacement. An agent either must be ready to discuss such matters or be able to contact someone who can. Here again the "business and service relationship" with the company is tremendously important. A knowledgeable staff and a supportive carrier can mean the difference between success and treading water.

Sound loss control is invaluable

In its simplest terms, loss prevention is nothing more than education. A carrier committed to building a "business and service relationship" with its customers and agents will provide both with loss prevention information.

A little loss-control information for novice boat owners, for example, may well prevent some claims from arising. It is critical that boat owners and operators take a safe-boating course, have all of the prescribed safety equipment on board, and be familiar with the operation and maintenance of the boat. Being blessed with a good dose of common sense doesn't hurt either.

Another tip is to inform a boat owner that starting the engine (outboard or inboard/outboard) out of water on a ramp can ruin the water-pump impeller and leave the boat stranded with a severely overheated or destroyed engine. This single message often can save a boat owner several thousand dollars in repairs that typically are not covered by insurance.

In recent years, there have been several tragic boating deaths resulting from carbon monoxide poisoning. The hazard of operating any internal combustion engine in a closed space, or simply being exposed to the exhaust of such engines, has proved time and again to be fatal. Even swimming around a stationary vessel with a generator or engine exhaust discharged in or near the water can be deadly. By informing policyholders of this risk, agents perform a valuable service and may prevent a tragedy.

Each year, serious injury and death occur from electrocution in and around boats, yet few warnings are posted or sent to boat owners and operators. Many large boats remain berthed and attached to shore-power electrical service, or operate onboard generators producing AC (alternating current). Improper grounding or faulty circuits on the vessel or in the shore-power circuitry can leech electric current into the water surrounding the boat. An unwary person swimming or falling into the water near such a boat may drown.

Claims management is crucial

Recreational boating insurers sometimes fail to properly evaluate claims, correctly administer policies and pay only those claims that are covered by the contract. These insurers often are the ones that either move in and out of the marketplace or exhibit unstable pricing. Low loss ratios indicate profitability and result in lower premiums.

Claims management requires a constant duty of "good faith and fair dealing," not only to the customer with a claim but also to the insurers' other policyholders. When a company consistently overpays claims or pays claims falling outside the policy contract, every policyholder is affected. Claims representatives for specialty marine carriers are typically better trained and more knowledgeable than those of other insurers, which ultimately results in more effective claims handling. That benefits all insureds-and agents-in the long run.

Sailing into a profitable sunset

Taking advantage of the opportunities in the recreational boating market requires a sound marketing and prospecting plan, the right insurers with which to build that special "business and service relationship," and a properly trained, enthusiastic staff. With such resources in place, an agent can enjoy smooth sailing.

Jerry L. Woolard, JD, is the owner of Woolard & Associates, Program and Marketing Consultants. The firm focuses on providing producers and insurance companies in-depth business analysis, audits and program development assistance. Mr. Woolard retired from Employers Reinsurance after 27 years and has over 30 years of insurance industry experience. He can be reached at (913) 631-1159 or at jwoolard@kc.rr.com.