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Industry news Marinas Facing Skyrocketing Insurance Fees By Lindsey Savin Reprinted with permission from Soundings Publications, LLC Boatyard and marina owners preparing to renew their insurance coverage should brace themselves they're about to get hammered. Officials at some of the major insurance companies providing marina coverage say rates are skyrocketing for 2002, and marinas big and small are going to feel the squeeze. "This is as bad as I've seen it in my 36 years," says Frank Sioli, senior vice president of Miami-based AON Risk Services of Florida. AON insures some of the biggest boatyards in the country, including South Florida mega-yacht yards Rybovich Spencer and Bradford Marine. Sioli says rates are going up a minimum of 25 percent from last year. But in individual cases, he says, the increases could be as much as 100 percent, depending on a range of factors from the size of the marina to its location. "Realistically, the sky could be the limit," Sioli says. Insurers were hard hit by the events of Sept. 11, which is going to cost them more, by far, than any catastrophe in history. But that's only one of the forces coming into play. Insurers say the ingredients for big rate increases were taking shape before September. "[The Sept. 11 attacks] were just the icing on the cake," says John Chiazza, owner of Universal Insurance Services in Grand Rapids, Mich., which provides insurance to marinas participating in group plans offered through the Marina Operators Association of America and the Michigan Boating Industries Association. Under the MOAA and MBIA plans, Chiazza says he insures between 450 and 500 marine businesses, ranging from major marine consolidators to mom-and-pop operations. No more buyer's market Chiazza says the insurance market has been very "soft" for the past 15 years, meaning buyers have been able to obtain favorable rates. But a combination of factors historic claim losses, poor returns on stock market investments and the rising costs of reinsurance (the insurance coverage purchased by insurance companies) has forced companies to raise their premiums. As a result, the cost to the consumer has been rising for the past 18 months, Chiazza says. Sioli says the largest increases will come in the form of property insurance, which includes damage to buildings and all their contents, piers, docks and wharfs. Property insurance rates will rise "in excess" of 25 percent, he says. But areas that are more prone to wind damage, such as Florida, can expect increases in the 50 percent range. In addition to property insurance, marinas also carry other types of coverage, including liability, auto coverage and workers' compensation. Chiazza says workers' compensation rates are going to go up "tremendously", citing an "underpricing of the product" as the main reason behind the increase. But Chiazza agrees property coverage will show the most significant increase. Sept. 11 changed all "[The events of Sept. 11] triggered significant change in the insurance market," Sioli says. Chiazza agrees. "It will be the single most catastrophic event in the insurance industry," he said. Prior to the terrorist attacks, Hurricane Andrew, which raked South Florida in 1992, was the nation's largest insured loss ever. Claims totaled $19 billion. Estimates for insurance claims resulting from losses in New York City, Washington, D.C., and related tragedies of Sept. 11 are looming in the area of $75-$100 Billion. "Everybody is going to share in the recovery [of the insurance industry]," says Michael Smith, president of Global Marine Insurance Agency in Traverse City, Mich. Smith's primary business is consumer boat insurance. But Smith agrees rate increases for businesses were inevitable, even prior to Sept. 11. The insurance industry was coming off a 10-year period with "all kinds of capacity," he said, and when the stock market began to get shaky, insurance companies had to use their underwriting to make up for lost investment income. "Something's got to give," says Smith. Lack of competition in marine insurance is also a factor, Sioli says. He compares it to car insurance, where there are many companies writing policies, enabling customers to negotiate more favorable rates. The more specialized nature of marine insurance is part of what drives premiums up, he says. "You can go poor buying the right insurance," Sioli said. Mom-and-pops face brunt Rising premiums present an "extreme danger" for smaller marinas in particular. Even in the soft market, these marinas may have had difficulty getting the coverage they needed at a price they could afford, Sioli said. "Insurance is a very significant cost for most marine operators," he said. "It may be the second-highest cost other than the payroll." By its very nature, Sioli explains, the insurance business is "discriminatory" in the sense that volume discounts allow larger companies to pay less per unit than their smaller counterparts. But that's true in business in general. "The bigger you are, the less you pay [per unit]," Sioli said. Unfortunately, Sioli says, it is the smaller, family-run marinas that are going to be forced to pay what he calls a "disproportionate" share of the increases. The consequences of such an increase on the little guys could be devastating, Sioli predicts. Some, he fears, will skimp on coverage; others may be put out of business altogether. Sioli says his advise to smaller marinas is to "assume as much risk as is reasonably prudent." In other words, buy as little coverage as you think you can comfortably get away with. A Catch-22 Sioli fears many marina operators are going to find themselves in a Catch-22 situation: They can spend a fortune on insurance and effectively put themselves out of business by buying all the coverage they might need, or they can "roll the dice." In the latter case, if something happens they can't afford to cover themselves, they also may wind up out of business. Chiazza agrees mom-and-pop marinas are going to take the greatest hit. "[They] are the ones that are in for sticker shock," he says. Chiazza says one thing marina owners can do to save themselves some of the headaches (and maybe some money) is to start the renewal process early. He recommends contacting your current agent or scooping out a new one at least 90-120 days before the policy expires. Too often, Chiazza says, marinas call on the same day the policy expires, which doesn't leave much room for negotiation. Chiazza says he gets "15 calls a day" from marinas who have let their insurance expire and are looking to renew. In the end, the procrastinators, "end up paying higher prices for {more} limited coverage," he said. Chiazza also suggests buying from a broker who is familiar with the industry, and probably is best positioned to get the coverage a marina needs at an affordable price. "[If you] buy crappy coverage from insurance companies that aren't the most highly rated, [you'll] end up with gaps," Chiazza says. Finally, do your homework, Chiazza recommends. He urges marina owners to review their prior loss history and determine where they are having the most problems. That will certainly help when deciding which coverage to purchase, he said. No relief in sight Sioli doesn't think the insurance crunch is going to end soon. "We don't think this is going to go away in one year," he says. Sioli predicts rates will continue to climb throughout 2002 and even possibly into 2003. By then, he says, "the dust might have settled." Chiazza thinks Sept. 11 and the tough economy "could change the way we deal with insurance forever." He predicts the market will remain particularly hard for the next three years, especially for marinas and property owners along the Atlantic Coast and throughout the even-more-hurricane-prone Caribbean. In the Caribbean, Chiazza says, it could be difficult to even find a company willing to insure you. "[In the Caribbean] you can't find it even if you want to buy it," Chiazza says. "Lots of companies have pulled quotes off the table." Sioli remains pessimistic about the outlook for premiums. "I'd like to think that the glass if half full, but right now it is half empty," he says. "{Right now} the 'R' word, meaning 'reduction', is not in our vocabulary." « Top of page |
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