Lost at Sea: Hardening Marine Market Challenges Agents and Brokers

Marine insurance is, as Insurance Journal put it last year, “a unique animal.” The belly of the beast consists of cargo and yacht coverage, which account for 50 percent of U.S. written premium.

But another marine market, aside from coverage of large pleasure watercraft often excluded from property/casualty policies, is passenger and gaming vessels such as ferries, cruise liners and riverboat casinos.

The kind of coverages required for these vessels varies widely depending on where the vessel operates, how many passengers it carries, the alcohol-to-food ratio and a host of other factors. Experts agree that it takes years of training and expertise to competently learn the trade and offer insureds the best service while limiting one’s own legal risk.

“If I were an independent broker or agent who did not do cruise ship or gaming work, I would think long and hard before delving into it,” said David Wood, a lawyer who specializes in business insurance policy enforcement for the Camarillo, Calif. firm of Wood & Bender.

Wood said that many passenger and gaming vessels have very specialized needs, and agents and brokers can expose themselves to serious malpractice risks if they are unsure about how to proceed.

That is why much of the passenger vessel business goes to big brokerages such as Marsh Inc. and Arthur J. Gallagher. For instance, the Miss Belterra, a non-navigating gaming vessel owned by Pinnacle Entertainment Inc. and located in Belterra, Ind. on the Ohio River, purchases its insurance through Marsh’s Las Vegas office. The Indiana Gaming Commission requires a minimum amount of insurance and the vessel is covered for hull and machinery, general and excess liability, workers’ compensation (the Belterra employs more than 1,000), pollution, business interruption, loss of earnings and charters’ liability.

Miss Belterra’s premiums increased by 50 to 60 percent last year, according to risk manager Mary Johnson, and the vessel is insured by more than a dozen carriers including Lloyd’s of London, Zurich North America, Allianz, CNA and the St. Paul Cos.

Jennifer Bell of Aon Risk Services is the director of the endorsed insurance program for the 400-member Passenger Vessel Association (PVA), and brokers about 200 of those members, mostly through Ace’s INAMAR Commercial Marine division. Bell, who operates out of Aon’s Cleveland office, said the PVA is mostly made up of dinner and sightseeing cruise boats, so-called “fast ferries,” gaming vessels and, on the West Coast, whale watching boats.

Carriers give better terms to PVA members because “they have access to resources within the PVA such as safety and loss control, security and regulatory issues,” Bell said. Of course, PVA membership won’t save vessel operators from the still hardening market.

Rising once, rising twice
Last year premiums increased by an average of 20 to 25 percent, Bell said, while this year premiums have varied more widely depending on the individual risk, increasing by as little as 10 percent or as much as 25 percent.

An industry survey by London-based United Insurance Brokers Ltd. foresaw premium hikes of between 20 and 40 percent by the world’s marine protection and indemnity (P&I) insurance mutuals, often called clubs, which often cover large cruise liners such as Carnival or Princess. However, most smaller passenger vessels are covered stateside by insurance companies.

In addition, the marine insurance market was hit hard by Sept. 11 because of carriers’ dependence on the same reinsurance markets aviation companies turned to. Still, marine insurance in general has performed better than the overall property/casualty market in recent years, according to Deirdre Littlefield, chairman of the American Institute of Marine Underwriters (AIMU).

In a speech at AIMU’s annual meeting last November, Littlefield reported that net written premiums for marine insurers in 2001 outpaced the P/C market, growing by 12.3 percent to more than $1.2 billion, compared to only 8 percent.

Moreover, 2001 saw AIMU members (who write about 90 percent of U.S. marine business) post a 98.9 percent combined ratio compared to the industry-wide figure of 116 percent. Nevertheless, Littlefield said, “clearly we still have a way to go to achieve a combined ratio below 91.6 percent—the magic number needed to cover capital costs.”

One limit on premiums has been the amount of capacity in the market, according to Bill Davis, a senior vice president in Acordia’s Seattle office. “Underwriters have backed off a little bit,” Davis said. “They can’t go crazy with rate increases because they know there are people waiting to get in the game.”

But, Davis said, underwriters are looking for profit, not volume, meaning that a vessel with a bad loss experience may not only have higher premiums to pay, but may not get quoted at all. The marine market is generally more flexible because insurers do not have to file for rate increases or decreases, he added.

A moving “soft target”
Terrorist suspects in federal custody have named cruise boats and ferries as possible “soft targets,” which along with the coverage required by the Terrorism Risk Insurance Act (TRIA), has caused some carriers to raise premiums.

“It varies all over the lot,” said Peter Robinson, who handles passenger vessels for self-described “modest-sized” Glenn Falls, N.Y., agency Loomis & LaPann Inc. “I don’t think anybody’s gouging. Some companies feel that in order to comply with the law they have to charge fairly significantly.” Passenger vessels make up 75 percent of Loomis & LaPann’s marine business.

As with regular property coverage, it depends on where the vessel operates. If it’s in a high traffic area near an urban area, the operator has probably seen a high TRIA coverage price.

“Most of the stuff we see on the pricing side is moderate or included,” said Jerry Grim, executive vice president of sales for Gallagher’s St. Louis marine division. “Gaming is getting targeted with higher TRIA premiums and generally considered more of a target.”

However, marine coverages already include a war-risk provision protecting vessels in cases of strike, riots and civil commotions (SR&CC), unlike standard P/C policies. This has caused some carriers to price TRIA far more expensively, Davis said. For example, one insured who owned five passenger vessels was quoted a $48 million TRIA coverage.

Security was a hot topic at the most recent PVA meeting, Bell reported. Ferries in urban areas that pick up passengers from buses, trains, auto, etc. are especially concerned. It will cost thousands of dollars to put in place a screening system that may eventually rival aviation security.

Davis said one of his insureds randomly hides a bag of money on his vessel and lets the crew know about it. This keeps them constantly on the prowl searching throughout the boat and alert to any possible security gaps. Whether such unorthodox methods will prevail or help bring down rates remains to be seen.

The U.S. Coast Guard (now a part of the Homeland Security Department) is currently formulating guidelines and regulations for passenger vessel security.

Gaming no longer a jackpot
Back in the early 1990s when riverboat gaming first came on the scene, there was a lot of excitement about its possibilities for the insurance industry. But things have changed, said Jonathan Brown, director of the special risk division for Farmington Hills, Mich.-based firm of Burns & Wilcox.

“The early operators found that combination of the vessel’s design, alcohol and gambling did not lead to good liability environment,” Brown said.

“The P&I market that insures vessels didn’t foresee quite what they had. A lot of claims just became bad news very quickly. Since then, with the market hardening it has become less and less popular. There’s only one facility I know that’s writing moored vessels for P&I—Zurich North America.

Further, as more states liberalize laws and allow gaming vessels to moor permanently on their docks, hooked up to the municipality’s sewage system and in some cases without even a functioning engine, there’s less of a need for marine coverage. Because these vessels are not in navigable operation, their employees do not qualify as Jones Act seamen, which would require protection and indemnity coverage.

Gaming vessel operators are more and more often purchasing just general property and liability insurance and workers’ compensation.

Training a necessity
Whether you’ve been producing marine insurance and have spent years learning on the job or are looking to enter this emerging market, training is available. New York City-based AIMU twice a year offers an “Introduction to Ocean Marine Insurance” certificate program that it says is useful for agents and brokers.

Contact AIMU at (212) 233-0550 for information about the next scheduled course offering.