Will the inland marine line of insurance coverage become a victim of its own success? With new entrants bringing in new capacity, and existing carriers beefing up their inland marine capabilities, analysts fear that the good times could end with either a glut of players driving down prices, or some catastrophe that will ultimately separate the wheat from the chaff.
For the past three or four years, this specialty line has enjoyed "incredibly profitable results," noted Ron Thornton, president of the Inland Marine Underwriters Association in New York.
"Consequently, there are a number of new entities entering the market and established companies adding to their capacity," he said.
As a result, Mr. Thornton noted that he gets a steady stream of calls from executive search firms looking for underwriting talent in the line, "and they usually are existing companies looking to expand their operations."
For example, late last month Philadelphia-based ACE USA announced a new dedicated team of underwriters serving the retail inland marine market. (ACE Westchester Specialty will continue to service the wholesale inland marine practice.)
In addition, as private equity funds also pour into the insurance market, new entities in the field are emerging regularly to swell his group's numbers, according to Mr. Thornton.
With more than 30 years in the business, Mr. Thornton said he does not shock easily. "But I have never seen it like this, where all these new entities are coming into the marketplace and existing companies are trying to ramp up at the same time," he noted.
Such volatility presents underwriting challenges, he warned.
"How much good underwriting is being done when you have all of this churn?" Mr. Thornton said. "And when that happens, you have to ask yourself who is getting what message, and how is that being transported across the entire company."
With the existing pool of insureds remaining relatively stagnant, new capacity can mean only one thing: It's the simple law of supply and demand.
"We are not allowed to talk about conditions or pricing, but anyone can put two and two together," he said.
Reinsurance capacity for the line is on the rise, he noted, as some primary writers have decided to retain more risk after last year's favorable catastrophe season.
Bob DeMotta, marine industry practice leader for Chicago-based Aon, agreed that capacity is abundant in the inland marine sector, and attributes this in part to the willingness of ocean marine writers to branch out to inland risks.
With ocean marine writers extending coverage to inland risk, some insureds are taking lower deductibles since marine writers are more accustomed to them, he added.
One reason the experience for inland marine has been so favorable is the subrogation possibilities, he explained.
"If you have loss or damage to the cargo, the cargo insurer will pay the loss, but they…are aggressive about pursuing the actual transportation carrier to try and hold them responsible," he said.
Another factor softening this market is that catastrophe risk does not play a major role in inland marine coverage, since any given shipment at any one time would not be that large to make a huge difference in losses, market observers explain.
One inland marine sector to watch is builder's risk, which entails exposures facing any construction project before it is turned over to the owners and occupants. Thanks to the slowdown in housing after the recent boom–a trend that could perhaps be accentuated with the recent crisis in the subprime mortgage market, further lowering demand for homes–insurers are looking elsewhere for opportunities.
"What you have in builder's risk today is the trend away from the private homes and the smaller apartment complexes to the commercial market," according to Mr. Thornton. "What you have been having is all of these construction carriers being buoyed up by the residential housing [boom]."
However, there may not be enough commercial projects to slake the thirst of the builder's risk capacity profitably today, he warned.
Another critical sector for inland marine–trucking–also faces challenges that may ultimately impact the line.
"Let's just take a look at all the things facing the trucking industry. There have been stories about driver shortages, government regulations such as hours of service and, of course, the price of oil," Mr. Thornton noted.
But while trucking companies are facing new pressures, they are also in luck in that they now enjoy a host of new insurers vying for their business.
"And so suddenly this extraordinarily profitable line of business becomes not so profitable, and everyone wonders what happens," Mr. Thornton said.
Another development impacting the market is that Mexican truckers are now able to deliver goods throughout the United States under a pilot program, providing another possible profit-pinching element. (See related story, page 13).
"So, if the Mexican truck can go all the way to Chicago, our guy here just lost that business," he said. "And I don't think that [Mexican] truck will go back empty."
Fine arts represent another important element in the inland marine firmament. "There is a lot of focus now on what could be defined as 'insider theft' in museums, where employees of museums are stealing things," according to Mr. Thornton.
Inland marine writers also have a new field of clients in logistics companies–such as freight forwarders, who help arrange the transportation along the supply chain, noted Aon's Mr. DeMotta.
"Many companies are now outsourcing the functions of the traffic departments," he added.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.