PERSONAL WATERCRAFT, Expanding the appeal of recreational boat coverage

Both the marine industry and the insurance industry have witnessed a surge in recreational boating, from mega-yachts to personal water-craft (PWC), over the past few years. According to U.S. Coast Guard estimates, there were roughly 1.1 million PWC on the water during the 1998 boating seasonÐgood news for those involved in the writing of PWC Both the marine industry and the insurance industry have witnessed a surge in recreational boating, from mega-yachts to personal water-craft (PWC), over the past few years. According to U.S. Coast Guard estimates, there were roughly 1.1 million PWC on the water during the 1998 boating seasonÐgood news for those involved in the writing of PWC insurance.

Making waves in the market
“Some of the advantages of working in the PWC market, as far as from an agent’s perspective, the principle thing…[is that] the policies and the products themselves are generally pretty simple,” said Bill McCord, vice president and national director of personal lines for Michigan-based Burns & Wilcox. “They’re usually package policies where the liability and physical damage are combined into one simple product.”

According to McCord, PWC is an attractive market because of the simplicity of both the rating and the application. Agents looking to write PWC should be aware of the two biggest exposures for this class of business: bodily injury and theft. “From the standpoint of other kinds of coverages, generally the trailer is a big item,” he said. “And medical payments can also be included, but other than that, there aren’t a lot of other things that you really need to talk about when it comes to personal watercraft.”

A recent survey found that 80 percent of PWC are used for short cruises, entertaining and/or exploring with family and friends. Many carriers have caught on to this trend and now offer a multi-unit discount-a discount that is very similar to what you might expect with automobiles.

“In our part of the world, here in the Great Lakes…standard homeowner carriers like to write boats because they generally have good experience,” McCord said. “We find a lot of markets that will add personal watercraft onto a homeowners policy by endorsement, and that’s something that can happen in other states too.”

The evolution of the mini-jet boat has led to a new category for PWC. “Over the last couple of years, these [jet boats] have become the hottest item in the watercraft business as far as sales,” McCord said. “They fall into a different rate category…that’s just a little bit higher, because you’ve got more value and more exposure from the liability standpoint.”

Caught in the wake of competition
And as the rivers, lakes and bays have become crowded and more competitive, so has the line of business for insurers. McCord described the PWC market as still “pretty much a specialty carrier market” and “a reasonably competitive line,” although he was quick to note that “it depends on the market-the area of the country that you’re in. People realize if they can control the liability losses…they’ll do well, especially compared to regular boats.”

According to McCord, there are five or so players scattered across the country who are really serious about the PWC market. McCord’s list of major players includes: The McGraw Group, Jefferson Insurance Group, Northland Insurance Companies, American Modern Insurance Group and GuideOne Insurance.

“Competition, obviously, is much stronger today than ever [in PWC], but having said that, competition is strong in all products,” said Brian Weaver, The McGraw Group’s vice president of sales and marketing for the state of California. “I think that because the market is so volatile today, companies are trying to find other avenues of premium to offset the lack of premium when it comes to the auto side. It seems like everything is somewhat driven around the auto business.”

Personal watercraft is the only product that McGraw currently writes outside of California. The program is written through admitted, A.M. Best rated “A-” Pacific Specialty Insurance Company. By taking its PWC program to a national level, McGraw Insurance Services has established itself as the nation’s largest writer of personal watercraft insurance.

“We were primarily the market up until about four years ago, at which time we started to see competition popping up,” Weaver said. “That competition included people who were somewhat in the same products as us-ie. the motorcycles and the sub-standard business.”

Continuation of competition
Based in St. Louis, American Modern Insurance Group distributes its PWC product all over the U.S. through MGAs and independent agents that specialize in marine insurance. “An independent agent who has other lines with us can market the product, but we really gear ourselves toward the MGA and marine specialist,” said Kevin Morreale, senior vice president of marketing for American Modern.

One of the key strengths of the company, according to Morreale, is experience. “We’ve got a division within the company dedicated to marine,” he said.

This is a big advantage since the boat business is highly diversified. With so many makes and models of watercraft, and so many types and uses for these craft, it’s difficult for any company or agent to sort through it all. “You can’t find a boat that they’re not familiar with, and it’s helped us a great deal,” said Matt Spaulding, assistant vice president of underwriting for American Modern.

American Modern is not too worried about its competition. “We’re one of the pioneers of the business, and so part of the distribution and our strength is the fact that we were on base first,” Spaulding said. “A lot of companies are still jumping in and for them it’s a relatively new product.”

McGraw’s Weaver agrees. “I think there will be a continuation [of competition] to a point where the competition will realize that they’re not writing enough premium to warrant too much of an aggressive counter-attack,” he said.

The tides they are a-changin’
It used to be that parents would teach their children how to operate a powerboat or sail a sailboat. In recent years, however, as bigger and faster PWC have hit the waters, studies of boating safety programs are uncovering some not-so-good news-more newcomers are lacking in boating education. Unfortunately, the growing traffic of PWC in the same crowded waterways used by bigger and faster boats has contributed to more accidents.

Which is why in 1998, the National Transportation Safety Board (NTSB) issued a report regarding personal watercraft and safety. In the report, the NTSB suggested that manufacturers of PWC work with the Coast Guard to develop a set of minimum standards for equipment safety and seaworthiness. It also proposed increased training of operators as well as broader use of safety equipment such as personal floatation devices and helmets.

“The thing with personal watercraft is that they are a lot of fun, but you get the permissive user issue. It’s not just a single
policyholder, it’s also their family, their friends-everyone is using them with various degrees of experience,” Spaulding said. “We share the industry’s desire to see some continuing education in this area and more consciousness of the safety issues.”

Currently, 28 states and territories and the District of Columbia require some form of either education/certification or licensing for some or all boaters. And some states have targeted specific age groups (such as youth operators) or types of vessels (such as PWC) for mandatory education requirements.

“Once legislation came into play, it started to curtail the usage of PWC,” Weaver said. “In addition, various waterways were being shut down [to PWC], and therefore the accessibility of riding them became a hindrance to the sale as well as the overall cost.”

The price is right
Due to competition in the market, McGraw had to realign some of its rates, and they did this by offering optional deductibles. “If premium purely makes a deciding factor, what we can do is increase the deductible slightly which allows the premium to be reduced slightly,” Weaver said. “But premiums as a whole have really not increased in line with the cost of the units, so that tells you that you’ve just got to sharpen your way of handling the business.”

McGraw’s rate is somewhat tied to the price of the unit. “We’ll write a package for $129, and we go all the way to $299 for a package,” Weaver said. “The bigger the cc’s [cubic centimeters], obviously the more costly the unit, so we address our rate primarily from cc’s.”

American Modern decided to lower its pricing this season for its PWC line. “The fact is, we’ve had some pretty good experience with watercraft,” Spaulding said. “We don’t lower rates just to generate new business or expand business. Instead, we’ve adjusted the price to reflect our success and experience with the market.”

Speaking of price, the average retail price of a PWC is approximately $6,700. In 1990, unit sales hit 72,000 and the sport caught on like wildfire and quickly built a reputation. By the mid-1990s, the PWC industry had become the fastest growing segment in the marine business. In 1995, annual sales peaked with close to 200,000 PWC sold, although that number has been on a downward spiral ever since, with the latest figures coming in at 130,000 units sold in 1998.

“In the mid-’80s you could buy one for $5,000, and now you’re looking at $8,000, $9,000, and in some cases close to $10,000 for a unit and a trailer,” Weaver said. “So the market has changed…possibly due to three reasons: saturation, accessible waterways to ride them in and cost.”

Rather than worrying about how declining PWC sales might affect business, American Modern decided to take advantage of the situation by offering a used rate. “Due to the decline in new units, there are more used units out there today than there have been in the past,” Morreale said. “The depreciation of the units is extremely high, so that’s why we’ve come out with a used rate-to capture more of the market.”

Riding into the sunset
Weaver feels that the PWC is a pleasure vehicle-one in which people enjoy riding and in turn will continue to upgrade their units. “Once you’re in, you’ve got the wetsuit, you’ve got the life vest, you’ve got all of the things that go with it, so you’re not just going to abandon it because somebody raised the price of the unit or because you have to drive another 30 minutes to get to the next waterway,” Weaver said. “You’re going to stay in [the sport], which is why I see the industry continuing to prosper, but not necessarily in the magnitude that we’ve seen in the past.”

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