Personal WatercraftExpanding the Appeal of Boat Coverage

Both the marine industry and the insurance industry have witnessed a surge in recreational boating, from mega-yachts to personal watercraft (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 season—good news for those involved in writing PWC insurance.

PWC came on the scene in the ’60s when a gentleman had dreams of building a powered water ski. His invention has grown into a family sport.

According to the Personal Watercraft Industry Association (PWIA), PWC owners spend more than $300 million on their sport annually. That money is spent on registration fees, launch fees, trailers, fuel, clothing, accessories, travel, watercraft-oriented vacations, and last—but of utmost importance—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 that 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. “They look at where each others’ rates are and try to be competitive in terms of pricing,” he said.

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. “It’s a separate division based out of St. Louis that handles all of our marine underwriting and processing for the entire company’s marine business.”

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. “They’re a very experienced group,” said Matt Spaulding, assistant vice president of underwriting for American Modern. “You can’t find a boat that they’re not familiar with, and it’s helped us a great deal.”

Needless to say, 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.”

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 boat 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.”

The price is right

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.

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.”

The challenge for anyone in the business is to grow the product and take advantage of the potential that exists in such a popular market. Like any other market, success in watercraft can come by underwriting the product properly.

Safe waters in Texas

Beginning Sept. 1, 1997, two new boating laws were implemented in Texas that affected owners and operators of PWC.

The first has to do with boating education requirements. All 13-, 14- and 15-year-olds must complete a Texas Parks & Wildlife (TPW)-approved course and be certified with TPW to operate a personal watercraft. On Sept. 1, 2000, the law will change to boaters younger than 17 years of age.

The second has to do with operator age. There are various requirements for youths between 13 and 16 driving a motor boat.

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