Recreational boaters in catastrophe-prone coastal areas–much like homeowners in states exposed to hurricanes–have suffered sharp price increases for coverage in the past two years, while the rest of the country enjoyed a softening property-casualty insurance market.
Indeed, after the first round of storms in 2004, "there was still a lot of capacity, but the rates went up two, maybe three times," according to Matt Anderson, vice president of Global Marine Insurance, a Traverse City, Mich.-based brokerage.
Moreover, so-called "absentee owners" in Florida who spend only part of the year in the state found capacity drying up, he noted.
"Insurers discovered from the claims that, of course, anybody who was not living where the boat was did not take care of the boat, in that they left it out in the storm's way, and there was a lot of damage from that," he said.
Those owners were forced to go to a nonstandard market for coverage, such as a Lloyd's syndicate, he added. "But if the vessel was under a certain dollar amount or a certain size, then you could still get insurance for it."
Owners of boats valued over $100,000 found obtaining coverage difficult, he noted.
"They had to come up with storm plans or hire a captain to watch the boat who is committed to taking the boat out of harm's way if a hurricane comes in," he said.
After the triple whammy of Hurricanes Katrina, Rita and Wilma in 2005, coverage availability basically dried up in the standard markets.
"Everybody stopped writing new business for the state of Florida and the coast around the southeast area of the country," according to Mr. Anderson.
He added that he did not think there were many denied claims due to policyholders failing to adhere to their "named storm plans" in 2004 events.
However, "after the second season was when you had the real impact," he said.
Many of the standard companies required new applications from current policyholders, along with "surveys by a certain date, and required the customer to comply with a series of requirements to get their policy renewed."
For boats under 26 feet long (with those over that size defined as a yacht), "there were some price increases, but nothing anywhere nearly as dramatic."
While most small boats are not left in the water during the off-season, "a lot of them are just on lifts in front of houses on the Inter-Coastal Waterway, so there is not that much protection," Mr. Anderson observed.
Many total losses result from big storms, as the docks where boats are parked are destroyed and sink. "And in some cases you will get lesser amounts of damage with canvas and equipment that will be wrecked," he noted.
Boat insurance rates in catastrophe-prone areas remained high during the storm-free 2006 season, with the added advantage that reinsurance contracts were renewed.
"But with only one good year, there is now very little additional capacity down in those areas," he warned.
Mr. Anderson said there is no indication the sharp increases in insurance rates have led to a decrease in boating.
"Florida is still the number-one boating state in terms of registered vessels," he noted.
Owners are taking higher deductibles, and there are some new products on the market that actually lower premiums by excluding wind coverage.
"Someone can self-insure on the named storm part of it," he explained.
Banks and other holders of loans on boats have not reacted to this trend of self-insurance "as quickly as they should have," according to Mr. Anderson. "That is one of the gray areas right now."
While coastal boat owners have had to swallow higher insurance rates, those in the rest of the country without major hurricane exposures have seen their rates go down as insurers seek safer bets in calmer waters.
"They need to reallocate that capital and look for growth, and because everybody is doing that, it is a soft market," he said.
Top insurers in the standard market include Zurich, Travelers, Markel, American Modern and Progressive.
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