Insurers Bail As Boat Business Booms

The year was a good one for boat manufacturers. With heightened interest in outdoor recreation activities and ways to social distance, consumer demand for new boats skyrocketed. According to the National Marine

Manufacturers Association, an organization representing boat manufacturers, retail unit sales of new powerboats in the U.S. increased last year by an estimated 12% compared to 2019. More than 310,000 new powerboats were sold in 2020, levels the recreational boating industry has not seen since before the Great Recession in 2008.

That should be good news for insurance agents specializing in boat insurance. However, unfortunately, the insurance market has been bailing on boats and yachts as sales have been rising.

“We’ve lost at least 12 companies that were doing yacht insurance,” said Kenneth Marks, owner of Marks Marine Insurance Agency, also called InsuretheBoat.com.

Marks has spent more than 40 years in the boat and yacht industry. He spent years as a yacht broker and repair professional, but has worked on the insurance side full time since 1990. He hasn’t been this busy since the early 2000s.

“The insurance industry is really starting to cherry pick,” he said.

He believes the boat and yacht insurance industry has “taken it on the chin” during the past 18 months.

The bailing by some carriers has led to capacity pressure on the other markets. “These companies are all hitting their capacity and none of us really were prepared,” he said.

Technology is partly to blame. As in the automobile industry, newer technologies are significantly driving up claims costs. One boat technology, pod drive, is a marine propulsion system where the gearbox and drive are mounted right beneath the boat in the water. They steer on a large axis, and when mounted in twin and triple set-ups can be used with a joystick for ease of parking.

While this technology has been “amazing” there has been a downside. “We didn’t understand what was going on here with this technology until we started having more and more claims,” Marks said. “People started running on ground, or the gyro started failing, then more computers were onboard these boats. … Just like our cars now, everything is computerized.”

Then lightning struck. In the past, a lightning claim on a boat could average around $8,000 to $18,000. “Now we’re seeing claims of $30,000 and $50,000. We weren’t ready for this in the industry,” Marks said.

The advanced boat technology is great, but it has opened the door to power surge claims, lightning strikes at the docks, and even power surges from generators. “If something goes bad in the generator, that could blow out the system on a boat,” Marks said.

According to Marks, the number of insurers in the market is down but those that are in or have entered the market are smart. “They’re coming out with more well-rounded deductibles covering more exposures that they didn’t used to have deductibles for. Or just saying, ‘Hey, we don’t cover it.'”

The insurance waters have been particularly choppy the past six months. “The scary part for an agent is that some of these companies are changing policy language almost weekly,” he said. “It’s been a challenge.”

Technology is not the only concern for boat and yacht underwriters. Another concern is geography. Hurricane activity in the Atlantic in 2020 reached record highs. “There’s a lot of companies that do not want Florida exposure or do not want boats in the Bahamas longer than four months,” Marks said. “Anywhere in a hurricane zone, which is basically considered below Georgia right now, they don’t want boats full-time.” That is standard among the carriers he works with but it’s getting more difficult.

Older boats, too, are tough, with pre-1990 boats now more difficult to insure.

Then there are the risks presented by brand new boat owners. “There’s so many new people who have never owned a boat before going out and buying a 38-foot or a 45-foot boat,” he said. “Historically you start with a 7-foot sailboat or whatever and build your way up.”

Advances in boat technology have made driving larger boats much easier. “Today, boats are easier to drive because of the joystick with these pods. Or with the computers, you can basically drive most of the new boats by joystick,” Marks said.

But insurance companies turn away from that kind of exposure. “They want somebody that has at least five years minimum experience with that size of boat,” Marks said.