The cost of insuring boats, marinas and businesses near shore is going up. Way up.
After property and casualty insurers took a beating in 2011 — particularly from Hurricane Irene which did more than $2 billion in damage in Connecticut alone — the predictable response has been to raise rates and tighten underwriting policies.
That means businesses are facing premium increases of double or even triple the cost for boat and marina coverage in 2012 compared to previous years.
The causes for the rate hikes vary, according to local brokers.
Natural disasters, a slumping economy and weak investment earnings contributed to the rising insurance costs, said Carter Gowrie, president and CEO of The Gowrie Group in Westbrook.
In a soft market cycle, insurers compete with each other to offer low-priced policies. But in a hard market, insurers — sellers — have the upper hand on pricing, said Gowrie.
Gowrie, who heads up the largest marine insurance group in the U.S., said it could be at least a year before the industry returns to a softer market.
“The last time we saw the beginning of a hard market was around 2000,” said Gowrie. “It started to pick up but then 9/11 sparked another hard cycle that lasted through 2005.”
A key factor stems from the large losses sustained during last year’s storm season, which prompted carriers to increase rates and deductibles across the entire class of business. In Connecticut, brokers have seen insurance premiums jump as high as 25 percent this year.
Nationally, premiums have shot up as much as 50 percent, according to Kerry Stuckey, chief operating officer for Stuckey & Company, a specialty insurance provider and consultancy based in Missouri.
“The insurance industry has a very short-term memory,” said Stuckey. “In 2011, it was a huge year for storms, so the knee-jerk reaction is to increase rates and raise deductibles.”
National weather catastrophes cost insurance carriers $35.9 billion in 2011, well above the 2000 to 2010 average of $23.3 billion. Thunderstorms, including tornado events, were the costliest, followed by hurricanes and winter storms, according to the Insurance Information Institute.
Hurricane Irene battered the Connecticut shore in August and caused an estimated $2 billion to $5 billion in damages, according to the Insurance Information Institute.
Tighter underwriting guidelines and a decreasing appetite in certain areas among carriers is making it challenging for brokers.
“Irene was the first real hurricane since Gloria in 1985 and I think we grew complacent and backed off from being as prepared as we should have been,” said Gowrie.
“This made insurance carriers really think about how to stretch their portfolio to protect themselves against significant loss,” said Gowrie.
Stuckey said carriers are getting tougher on terms and conditions and asking for more information about risks.
“Docks are real susceptible to bad weather. They are asking about the construction and age of the dock,” said Stuckey.
“Before, a 30-year-old wood-frame dock wouldn’t raise any concerns,” said Stuckey. “Now carriers are looking at the claim activity and assessing the risks for potential losses.”
Brokers said they are receiving more requests from carriers about whether the insured have an emergency preparedness plan.
“It doesn’t have to be anything formal,” said Stuckey. “Just something basic that shows how they would respond to an event.”
Typical insurance policies available in the boat and marina market include coverage for docks, vessels, boat dealers’ inventory and onshore property.
“In addition, many well-known carriers have vanished from the marketplace altogether and those that remain have a decreased appetite, especially in weather-prone regions,” said Stuckey.
“Agents need to get marina and boatyard insurance submissions in as soon as possible to receive the best quotes possible.”
For properties with high values, there is “definitely significant rate increases,” said Stuckey.
He said he has seen some premiums double so that a business near the shore that paid $16,000 out in premiums last year could be hit with a $32,000 bill in 2012.
In an effort to minimize the sticker shock, local insurance brokers are giving clients an advance warning about potential increases.
Robert Bouvier, president of West Hartford-based Bouvier Insurance, recommends shopping around early for the best options and renewal rates.
“We’re seeing some hardening in the insurance market in general with property and workers comp rates,” Bouvier said.
He has noticed premiums are rising at least 10 percent as companies renew policies.
Bouvier said he spends time exploring alternative plans, adjusting coverage levels to limit rate increases and shopping multiple carriers to find the best policy for his clients.
Gowrie said he is seeing premiums with a minimum 25 to 30 percent increase and sometimes higher, depending on the type of business and policy.
Many people in the marine industry have been caught off guard by workers’ comp premium increases, said Gowrie.
Premiums on workers’ comp policies actually dropped 35 percent between 2006 and 2011, according to Gowrie.
“That never made sense to me because 60 percent of all the claims are medical bills and 40 percent are related to lost time,” said Gowrie.
“But medical inflation is in the double digits every year. That’s just not sustainable,” said Gowrie. “The market is just working to correct itself.”
