Who’s to blame for the current marine insurance mess? Greedy underwriters and reinsurers? Unprepared marine business and marina policy holders? Careless boat owners in harm’s way? Lackadaisical insurance agents? Makers of boats and products whose designs can’t ride out rough weather? All the above?
After 2005, the biggest U.S. “named storm season” on record, the marine insurance industry knew business could not continue as usual. With historic claims paid out and forecasters predicting another blockbuster storm season for 2006, insurance executives decided to cut their losses and withdraw from many storm-affected markets. For many boat owners, coverage dried up. On the commercial side, underwriters responded by doubling or tripling premiums. In both areas, provisions were added that would curtail coverage when “water and wind” — uh, really? — caused the damage. Some insured chose not to pay and “went bare.” Others paid and absorbed the increases (e.g., cut their profits) or passed them through to consumers. At the end of the tallying, everybody got boxed around.
In early 2006, the Insurance Services Office Inc. was estimating insurers would pay $50.3 billion for storm losses of the previous year, 90 percent attributable to Hurricanes Katrina, Rita and Wilma. Wilma, which hit Ft. Lauderdale, then moved north and out to sea, was expected to account for $6.1 billion in losses. Of the 750,000 expected personal and commercial claims from all storms, those from boats and “recreational vessels” were projected by the ISO to be $125 million. BoatU.S., which offers insurance to its members, pegged the boat loss figure for Katrina alone at $650 – $750 million.
No matter what the accurate boat loss figure is, the payouts stunned the underwriters who pulled out of the Florida market, saying it depleted their reserves and devastated their “reinsurer” partners. For the most vibrant U.S. market for boats and related services — South Florida, with an economic impact of $13.8 billion (Broward, Miami-Dade and Palm Beach counties), according to the Marine Industries Association of South Florida — that loss figure is certainly challenging, but is it insurmountable?
Then the 2006 storm season essentially never occurred. As a result, all that extra premium income being collected, but not paid out, showed up on insurers’ bottom lines. The media, boat owners and businesses howled that people had been gouged for the benefit of insurance company stockholders. Nobody wanted to ask what would have happened if “the big one” — a category 4 or 5 storm aimed directly at greater Miami and Ft. Lauderdale – had hit in 2006. But, it’s high time somebody does.
Herewith, then, the idea of a Marine Insurance Advocacy Consortium to prepare for that consequence. There is an obvious role for underwriters and agents, boat owners and marine businesses and marinas. Input is needed from marine surveyors and engineers. Boating consumer and industry groups can surely advance ideas and provide liason with affected government agencies and state and federal lawmakers.
Goals need to be identified, but for starters, they should include:
• Keeping marine insurance available
countrywide and “affordable.”
• Maintaining bonafide insurance coverage without undue exclusions.
• Guiding marine claims paid to revert to new boating purchases.
• Identifying ways to lessen individual and corporate risk and educating those affected to implement them.
• Involving the parties – especially boat owners — to pay fair premiums.
• Brainstorming physical and financial
routines to cut losses.
• Informing all affected of progress,
successes and failures.
Some of this is already occurring. There is a significant amount of “how to prepare” and “what to do” storm information available to individuals and businesses from federal, state and industry agencies in print and on Web sites. The challenge is to get those who may be affected to access and action the information before it’s needed.
There is real peril for the boating industry in not facing the challenges of marine insurance. Honest and open dialogue at high levels needs to be forthcoming between those who need insurance coverage and those that provide — or who can withdraw — it. Ideas need to flow to better protect boats and other collateral from devastating storms and other risks, regardless of geography. The time is now, before the “big one” or some other calamity comes barreling down in a future boating season.