Building business with boat and yacht insurance

I HAVE been around boats since I was very young, learning how to water ski on Lake Mead. My parents always owned a boat when I was growing up, and today I have my own. I've brought my interest in boating into my insurance agency by selling boat owners policies. As the popularity of boating has grown, my agency's book of business has grown with it.

Boat owners value relationships as much as insurance agents do, and providing them with the proper coverage for their boats can lead to long-term relationships. They are often affluent and may own multiple vehicles, including for off-road use, and sometimes multiple homes. Some own their own businesses and have special life insurance needs. We write insurance for approximately 250 boats; for the clients who own those boats, we have written nearly 1,000 additional policies. In this article, I'll describe how writing insurance in this niche has helped us tack in the direction of greater success.

Toe in the water

Before I began my career as an insurance agent, I worked as a sales rep for a popular boating directory that was seen as something like the Yellow Pages of the boating world. This job brought me into contact with people from all corners of the industry. I worked with dealers who sold all types of boats, as well as related materials, mechanical parts and electronics.

While working for the boating directory, I called a family friend, Jim Osgood, who owned a Farmers Insurance agency, to talk about a career in insurance. He put me in touch with a district manager in my area, who helped me get started selling personal-lines coverages. I began my transition into insurance by working part-time, focusing on cold-calling and searching for homeowners prospects.

I had kept in touch with my boating-directory contacts, and when I told them the new direction I was taking they began sending referrals my way. I also started getting some boat-insurance referrals from a good friend, Jason Glasser, who worked for two different boat dealerships. Many of the homeowners prospects I met through cold-calling also owned boats.

Realizing that my personal experience with boats could be a valuable marketing tool, I decided to gain more expertise in writing coverage for them. As a result, I'm not only able to write policies for boats, but I also can use my expertise to build rapport with many prospects. A lot of boat owners have really nice homes and cars, but talking about their boats is what gets them excited. Some prospects sound uncommitted when I first speak with them about personal-lines coverage; when they mention a boat and then realize I'm a boater too, some of them have said, “In that case, let me fax you all my policies right now.”

The boat's the thing

All of our marketing efforts are focused on boat dealerships and positioning ourselves to write insurance for their customers. I estimate that 85% of new-boat purchases are financed through a bank or other lending institution. These institutions require evidence of insurance from boat owners before they will release a check to a boat dealer. Thus it helps the dealers to have a reliable source of insurance to which they can refer their customers.

Our marketing area includes Southern California, home to our main office, and Lake Havasu, Ariz., where we have a satellite office. We target all the dealerships in these areas with regular mailings, such as a type of marketing postcard called “keep 'em cards.” The cards include my photo, contact information for both our offices and other useful information that might lead the dealership to post the card somewhere handy. For instance, the most recent mailing included the 2005 PGA tour schedule, complete with television listings for each event. I'm also starting to send out some new marketing fliers that take advantage of my name, with the phrase, “Insure your craft with Wozencraft.”

We have begun hosting a booth at the annual Los Angeles Boat Show, an 11-day event that is one of the largest such shows in California. The show, held near the beginning of February, unofficially kicks off the boating season, which is our peak season for writing new policies. After the show, we sometimes have to scale back our cross-selling efforts, just to handle the volume of calls we get for new boat policies.

A boat by any other name

We have developed a specialty within the boating niche-custom-built, high-performance boats-but we work with several insurance companies to write coverage for all types of watercraft. The variety of programs and classifications for different boats demonstrates the need for agents to understand the unique characteristics of the niche. All carriers classify boats according to their length, with 26 feet serving as the industry-standard dividing line. Many make an additional distinction based on maximum speed. For example: For boats up to 26 feet long, we usually write boat owners policies through Foremost Insurance Co., which is owned by Farmers. We use Farmers yacht owners program for most large boats with a maximum speed of 65 miles per hour, and Markel's high-performance boat program for boats that exceed that speed. We also cover some boats with programs from Zurich.

The majority of boats we insure are relatively higher-value craft, often high-performance ski boats, that are built to their owners' specifications and usually delivered one to two months after ordering. The owners participate in a number of aspects of the boat's design. They may choose either a v-hull (single hull) or cat-hull (bi-hull) design. Most select a V-8 engine, either a Mercruiser or a Volvo Penta. The lowest power engine we see is usually the base, 265-horsepower model, and many insureds choose bigger engines. Some owners will leave the boat's color scheme and design to the manufacturer, but others will create their own design. These boats have gelcoat hulls, which means that the colors on the hull are actually poured into the hull mold with the fiberglass. An object such as a nail might leave a gouge in the hull, but it will not scratch the color off.

As an example, we recently wrote coverage for a 38-foot-long v-hull boat called a Hustler. This model featured Mercruiser's twin HP 500 engines, each with 470 horsepower. Such a boat has a top speed of 80 mph and can cruise at 50 to 60 mph. The v-hull design includes an area near the front of the boat that came furnished with a rest room, a small kitchen area, a bed and a couch.

Coverage details

Annual premiums range from as low as $300 for a small Bayliner or Sea-Ray craft to more than $8,000 for a $250,000 boat that can hit 120 mph. Most of the boats we insure have premiums between $800 and $2,000. We make a consistent effort to educate our clients about the unique aspects of boat insurance. This is important because some agents try to compete for boat accounts by offering a lower premium. Boat owners who choose such policies often don't realize that they're also getting less coverage. A few of the significant aspects of coverage are summarized below:

o Liability coverage: We start with $300,000 of protection and indemnity coverage (the term for boating liability insurance) for most of our clients. If we write the coverage through Farmers and we also have the client's personal auto business, the client is eligible for umbrella coverage as well. In those cases in which clients choose the umbrella coverage, they are required to have a $500,000 P&I limit.

Some carriers are unwilling to provide standard P&I limits for inexperienced boaters or those with a poor driving record. We just worked with a client in his early 20s who had an accident and two traffic violations on his driving record. I eventually found him coverage through ACE, but they provided a limit of only $25,000.

o Hull coverage: Hull coverage is the term for a boat's physical damage insurance. This coverage insures the craft itself and any items that are permanently attached to the boat. The valuation basis is an important consideration for clients, since the boats can have such high values. This is an area in which clients sometimes are tempted to choose less expensive coverage to save on premium. I point out to these clients that in the event of a claim, no one seems to talk about premium-only about how much coverage they have. Sometimes owners don't have a choice. For instance, all the carriers we work with offer only agreed-value coverage on boats over 26 feet in length. For smaller boats, some insurers offers a choice of valuation, whereas others offer only actual cash value.

o Personal effects coverage: Personal effects coverage is usually available in $100 increments, and is often subject to a maximum limit of around $5,000. This coverage insures any personal property on board, such as a fishing rod, water skis, ropes or a video camera that is dropped overboard. I usually recommend that my clients purchase at least a $2,500 limit. This is almost always written on an ACV basis.

o Geographic restrictions: Most carriers make a distinction between “inland” and “coastal” policies. Inland policies generally have lower premiums, for boats used exclusively on inland lakes and waterways. Such policies provide no coverage for claims occurring in saltwater or coastal areas. Coastal policies cover both coastal, or saltwater, use and inland use.

o Uninsured and underinsured boaters coverage: Unlike with personal auto policies, this coverage is not a standard feature of most boat owners policies. In fact, many carriers don't offer it at all. It can be especially important for boaters in vacation areas, sharing the water with smaller craft such as jet-skis, that are notorious for sudden, unsignalled turns. It has been estimated that between 75% and 85% of people using these watercraft have no insurance coverage at all.

o Named operator endorsement: This endorsement's purpose is to prevent individuals with poor driving histories from operating a boat, not to increase premium. As long as everyone on an insured's list has an acceptable record, carriers will approve the list for no additional premium; if an operator has a poor driving history, I don't know of any carrier that will accept the person, even for additional premium.

Boat owners sometimes ignore this provision or forget about it, which can lead to serious problems. We've just learned of a tragic situation in which one of our insureds let his father use his boat, although his father was not an approved operator. The boat turned too suddenly, all three people on board fell overboard, and one person drowned. In addition to dealing with the personal tragedy, this insured may not have coverage for the incident.

Anchors aweigh

We collect and submit much of the same information from boat owners that we need for personal auto policies. We ask about the make, model and year of the boat, as well as the length, hull design, horsepower and maximum speed. We visually inspect the boats, paying particular attention to older boats (most that we insure have been purchased new), and send photos with the application if we think it will help. We ask clients about their motor-vehicle driving record for the past five years, telling them in advance that we're obtaining their MVR as part of the application.

We've also created a “boat resume” form that we ask all our clients and prospects to fill out, and we send this to carriers with their applications. It includes questions about the personal boating history of anyone who might operate the boat-any claims they've had, for instance, and a list of all the other boats they have owned. If we think it will make a difference to an underwriter's decision, we may supplement the resume with a letter explaining why we think an insured is a good risk. If the insured has a good record and the boat is less than 10 years old, we can usually write a policy within a single day.

Servicing our boat insureds consists mostly of helping with claims and providing evidence of insurance. Being able to furnish certificates quickly is especially valuable to insureds when lending institutions notify them that they never received evidence of insurance, and that they're about to choose force-placed coverage-which usually costs the insured four times as much as standard coverage.

Thankfully, the majority of the claims are for such things as minor hull damage caused by hitting a rock, or for engine damage caused by the intake of sand. We occasionally have had total losses, such as a boat that caught fire and sank in Lake Havasu. This also required the insured to pay for the cleanup, including the gasoline. The insured's policy included pollution insurance in that case, though some policies don't.

Since we obtain driving records for all our boating clients, we've already taken a step toward writing other coverage for them. We ask if they'd like us to review their auto and homeowners policies, explaining that building long-lasting relationships with clients is more important to us than simply writing as many new boat policies as we can. As I've mentioned, many send us their policies when they realize we share their enthusiasm for boating.

To judge by the sales at boat dealerships in our area, interest in boating is a poor indicator of general economic conditions. Regardless of other financial forecasts, it seems boat ownership just continues to grow. Even if you don't own your own boat, demonstrating interest and expertise in the insurance needs of boat owners can help you build solid relationships with valuable clients. When it's written correctly, you might say that boating insurance is a rising tide that can lift the fortunes of many insurance agencies.

Devin Wozencraft is president of Wozencraft Insurance Agency. He has worked in the insurance industry for seven years and is a member of the Southern California Marine Association. Mr. Wozencraft earned a bachelor's degree in music from the University of California-Riverside. He can be reached at dwozencraft@farmers-agent.com.