Issue: April 2007
NAUTICAL KNOW HOW: Uncovered

Insurance companies get a bit more fussy about writing policies on boats.  by Frances Cerra Whittelsey

It was a Saturday in November, cloudy, with a blustery wind--perfect weather for a thrilling sail on Great White, our Atlantic 46 catamaran. With chores to do at home, I begged off,happy to let my husband Harry and his friends enjoy a day defying the usual speed limits of sailing.Who knew that the day would end so badly?

As Harry described it later, a brisk wind had taken them about 20 miles up Long Island Sound from our mooring in Northport, N.Y. Just as he started tacking to start back for home, the wind gusted powerfully and shifted direction, and catastrophe struck. The mast suddenly folded in half, crashing onto the deck and over the port side of the boat. The steel shrouds that had been holding it up fell across the cockpit, and the huge mainsail and Genoa stretched across the deck and over the side.

Miraculously, no one was hurt. Harry set an anchor and, for the next three hours, tried to save the sails and other pieces of the rig. Finally giving up, he cut the wreckage free and motored back to Northport.

Weeks later, the drifting mast was recovered. An inspection showed that a swaged fitting connecting a supporting shroud to the mast had failed. Such a failure could not be anticipated on an eight-year-old boat designed for, and used for, ocean racing. The cost of repairs ran into six figures.

We had insurance, but before we had even sent in all our bills, our insurer, Quadrant Indemnity, a member of the Chubb Group of Insurance Companies, told us they would not renew our coverage. The reason: "claims history."

Although our claim was a big one, it was only our second in 25 years of boating (the first being for theft), and it was the result of a fluke, not carelessness. And I was surprised to find that we weren't alone.

When I called BoatU.S. to get a quote on new coverage, a representative told me immediately that they would not sell a new policy to anyone who had made a claim of any size within the previous three years. Period. I called other brokers and kept getting essentially the same answer. Nobody wanted to insure our boat. I finally found one who got us a quote from a London syndicate for $6,445--three times what we'd been paying before.

What was going on? Had the hurricanes of recent years made marine insurers so skittish that they were severely cutting back on their coverage? Were we on the bleeding edge of a boat insurance crisis? The answers did not turn out to be simple or straightforward. While industry insiders dispute that there is a boat insurance crisis, they concede that marine insurers are looking to shed business and have tightened underwriting standards. "The market now is overly conservative," said Morgan Wells, an agent with Jack Martin & Associates of Annapolis. "If they see a pattern of two or more claims [or one severe claim, as in our case], they'll turn around and not renew."

They have also raised rates drastically, as much as 300 percent, in prime hurricane zones--and in fact most have stopped writing new policies altogether in those areas. For boaters in the Northeast and Mid-Atlantic states, rates on existing policies have risen only 5 to 10 percent so far, but anyone looking for new coverage on a boat older than 20 years will have a problem. Ditto if it is wooden.

Insurers are particularly shy of insuring people who are getting their first boat, and never mind how often they've been out fishing or diving or served as crew. Owners who are trying to move up to bigger boats need to do it in increments of no more than 6 feet. Try for a bigger jump, and you're likely to get turned down. It's easier to get coverage for a powerboat than a sailboat, because underwriters understand the risks of powerboats better, according to Tom Carroll, a New York based broker. That often translates into higher deductibles on sailboats, he said, but not necessarily lower rates for powerboats.

New underwriting standards have also come into play. For example, where state regulators allow it, companies now consider your credit score as an indicator of how careful you will be with your boat. Those with lower scores are asked to pay higher prices for coverage.

Compared with the huge market for auto and home insurance, boat insurance fills a small niche, and a risky one. Although 2006 turned out to be a hurricane-free year--and thus profitable for insurers--no one expects that lull to continue for long. The 2005 hurricanes alone damaged tens of thousands of boats, leaving the insurance industry with billions of dollars in liability. Some reinsurers (on which insurance companies lay off a portion of their risk) have gone out of business, and those that survive no longer will assume as much of the risk as before, according to Chris Pesce, managing partner of a Connecticut agency.

Pesce points out that the region where we do our boating is high on the list of areas due for a catastrophic storm. But he attributes the relatively level insurance rates so far to "competitive pressures"--including the trend of some companies that have stopped writing business in the Southeast to replace it with business from the Northeast. Another sign that competition remains strong is that the big marine assistance company Sea Tow is now getting into the insurance game, offering coverage through American International Group.

At the same time, insurers want to limit their risk. East Coast boaters who want to take their boats south of North Carolina for the winter are being told they can no longer do it before November 1. Insurers will not extend coverage into hurricane territory at any price until the storm season is over.

BoatU.S.'s refusal to insure boaters who have made a claim within the past three years is not a new rule, according to Jim Nolan, the association's director of underwriting. "People with prior losses are a bigger risk than those who have not had a loss," he says. BoatU.S.'s major carrier, CNA, is, however, renewing policies for most people who have had losses, he said. He added that policies for East Coast boaters in states south of Maryland now include a 5 percent wind deductible for named storms in addition to the usual 1 percent deductible for any physical loss to a boat.

Joseph Annotti, senior vice president for public affairs of the Property Casualty Insurers of America, a trade group, said there is no boat insurance crisis, but that companies are "being much more prudent in their underwriting practices, both in what they charge and how many risks they will take on in a geographic region." So boaters may have to look longer and harder to get coverage.

Talking to friends about the problem may help, as it did in our case. A friend put us in touch with an agent who is a sailor. He used his relationship with a carrier on our behalf. We now have a new policy that costs almost exactly what we had been paying before the accident.

But even that was a nail-biter, because we had to have the boat surveyed before the new coverage would take effect. With the lapse date looming, the survey was completed with only a few days to spare. So this spring, after missing a whole year of boating, Great White will once again turn heads as she sprints by traditional, one-hulled sailboats.

Frances Cerra Whittelsey, a former consumer reporter for the New York Times, is the editor and co-author of two consumer books and now writes on a variety of subjects from her home in Huntington Bay, N.Y.