The Smart Buyer: Insurance getting costlier post-Sandy

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Superstorm Sandy’s destruction was massive in New Jersey and New York, but the damage stretched as far west as Ohio, and the boating community absorbed much of the loss. Boats littered highways and lawns. Thousands of damaged vessels were being auctioned, and weeks later, officials were still trying to identify the owners of others.

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“It’s not just hurricanes on the coast. We’ve had weather-related claims all over the country,” says Bob Adriance, technical director of BoatUS, the nation’s largest insurance provider that specializes in boats.

So what happens on the heels of a year that has seen more severe weather — from droughts to heat-induced wildfires to record numbers of tornadoes to Sandy — than any in recent memory? Even without another year of unprecedented disaster many insurance brokers, consultants and underwriters agree: Rates will rise across the board.

“The first thing marine owners have to focus on is the fact that their insurance is going to go up,” says Andrew Barile, a California-based independent insurance and reinsurance consultant. “Everybody is going to have to pay. The distribution system works that way. If the industry loses money, they’ve got to get the money back.”

Given the damage to boats during Sandy, that hit might be felt disproportionately in the nautical community. “Boat owners … will likely see a sharper rise in rates than others because of the widespread marine damage incurred during Sandy,” says U.K.-based Steve Evans, who owns Artemis.bm, a firm that analyzes alternative risk transfer and weather risk markets, among other industry trends.

Boat owners in areas that Sandy heavily damaged should expect to see slip shortages next spring and summer that will come with rising slip rates, says Chris Squeri, director of the New York Marine Trades Association.

Steep competition for market share has kept rates low in recent years, so the increases could be significant, especially if some insurers pull out of certain markets.

Boat owners in some areas could experience the types of challenges Florida has been coping with for years if insurance providers begin pricing them out of the market or give up the marine business. “If someone decides it’s too risky and gets out, there’s always someone who will come back in,” says Adriance, who recently retired from BoatUS. “[The boat owners] will just have to pay for it.”

Claim checks from Sandy are slowing, says Greg Wright, a second-generation insurance broker at the Manasquan, N.J.-based John B. Wright agency, which his father started in 1961. “The first couple of weeks, insurance companies were writing checks pretty quick,” he says. “Now they’re starting to ask questions.”

The company’s typical customers-to-claims ratio along the Jersey coast is about 4.5 percent, Wright says. After Sandy, it shot to 41 percent. With $650 million in boat damage (the BoatUS estimate), insurance companies will have to increase rates quickly and dramatically, he says.

The Atlantic region is only seven years into a heavy storm cycle that typically lasts between 25 and 40 years. The last one stretched from the mid-1930s through 1970, according to a National Oceanic and Atmospheric Administration report.

From 1990 through 2008, population density increased 32 percent in Gulf of Mexico coastal counties and 17 percent in Atlantic coastal counties, according to NOAA. The most densely populated portions of those coastlines lie less than 10 feet above mean sea level, and more than half of the nation’s economic productivity is in coastal zones.

The increase in storm activity likely will have boat insurers examining new criteria, Adriance says. Where owners keep their boats will play an increasing role because some can be protected in a cove or other sheltered area, but others are exposed, making them more vulnerable to damage from storms. Marinas that haul boats prior to storms and secure them on the hard might earn insurance discounts for their boat owners, Adriance says.

All insurance buyers should look at their policies and analyze their risks annually, Wright says. If they don’t, he says, “They’re playing with fire.”

March 2013 issue