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Feature Articles
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Fishermen paying more for boat insurance
Rate increases a consequence of multiple factors, not vessel losses
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This article is reprinted with permission of Commercial Fisheries News, the Northeast's fishing newspaper for over 30 years, ©2003 Compass Publications Inc. Commercial Fisheries News is published monthly; annual subscriptions are $21.95. To subscribe or request a sample issue: call (877) 263-4496; fax (207) 367-2490; e-mail (cfoster@fish-news.com); or click on the hot link.
by Ann Kane Rheault
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While rates have not skyrocketed, boat owners are paying more for their marine insurance. (Steven Kennedy photo)
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POINT JUDITH, RI - If you've noticed your marine insurance premiums increasing lately, you're not alone. Commercial boat owners have been experiencing annual increases typically in the 20% range over the last few years.
The rise in marine rates apparently is not tied to commercial fishing boat losses, since these have been "fairly constant in severity and frequency" over the past several years, according to Jack Devnew of the Flagship Group Ltd. in Norfolk, VA.
Rather, rates for commercial insurance of all kinds, including boat lines, have been going up. And while that 20% hike is hard for any fisherman to swallow, it's a far cry from the 200%-300% increases being seen in commercial property insurance, said Rob Wells, president of Island Wide Marine in Setauket, NY.
One explanation for the across-the-board rise in rates is that the insurance industry is coming off several years of underpricing premiums.
Devnew explained that there was an immense drop in commercial insurance rates between 1997 and 2000 as insurance companies competitively underpriced premiums in order to get as much cash as possible to invest in the bull market on Wall Street.
The huge returns on those investments allowed insurers to turn a handsome profit even as they paid out more in claims than they took in from premiums.
However, since around the last quarter of 1999, the abysmal performance of the stock market, coupled with plummeting interest rates in the bond market, has forced insurance companies once again to return to underwriting. This has meant higher rates to policy holders in order to make up for investment losses.
Some boat owners may have seen rates rise more steeply than others depending on their history of filing claims and other factors. But, in general, marine insurance rates have not skyrocketed, according to Wells.
"Now instead of paying peanuts, you're paying peanuts plus twenty," he said.
Reinsurance losses
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Now instead of paying peanuts, you're paying peanuts plus twenty.
- Rob Wells (Janice M. Plante photo)
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Another force driving insurance rates higher is the rising cost of reinsurance. Primary insurance carriers spread their risk by taking out insurance policies against big claims with reinsurers.
The reinsurance industry has taken some major blows in recent months, the most significant being the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.
Even though the marine insurance sector did not suffer crippling direct losses from the attacks, the tragedy has had a ripple effect that is still being felt throughout the entire insurance industry.
Insurance analysts note that the global reinsurance industry has still not recovered from an estimated $17 billion hit to its capital reserves as a direct result of the terrorist attacks.
According to Insurance Journal magazine, Sept. 11 claims could consume as much as $70 billion of the industry's estimated $100 billion reserves, though it could be years before the final figure is known.
That estimate includes all types of claims - property damage, site cleanup, liability, business interruption, aviation, health and life insurance, and workers' compensation.
In addition to the terrorist attacks, the reinsurance industry has been slammed with a spate of huge lawsuits and massive claims associated with toxic household mold and asbestos contamination.
The result is "hardening" reinsurance rates, which eventually trickle down to every policy holder.
Jones Act
Notwithstanding the problems in the industry at large, Rob Wells said he believes that the root problem with the marine insurance industry lies in the Merchant Marine Act of 1920, commonly referred to as the Jones Act. That law covers the welfare of seamen and is roughly analogous to workers' compensation for employees working on land.
vHowever, unlike workers' compensation, which has limits on claims paid out for various injuries, Wells says the Jones Act treats the seaman as a ward of the court to be protected from ship owners.
Injured seamen invoking the Jones Act are entitled to sue the boat not only for medical expenses, but also for past and future wage loss, and even damages for pain, suffering, and mental anguish.
"The sky's the limit," said Wells. "If a crewman loses a pinky, he can get a million dollars if his lawyer's good enough."
If crewmen are working hard and not making a lot of money because fishing stocks are down or regulations are limiting catches, then an honest injury can be turned into a huge claim, he explained.
Efforts to reform the Jones Act were thwarted in 1996 by special interest groups that included the Association of Trial Lawyers of America.
Rates rising
So how much are rates going up? A few Rhode Island fishermen were willing to talk about their experiences for this story.
vMike Marchetti, who owns three boats that fish inshore, said he has seen 20%-30% increases in premium rates. He worries that as boats get older, maintenance gets tougher, and experienced crew get harder to find, safety is being compromised more each day.
vJohn Sorlien, a lobsterman who fishes within 60 miles of shore, noted that between 1999 and 2001, his insurance costs increased 30%, with an additional 16% increase between 2001 and 2002. Sorlien admitted that rising rates have impacted his bottom line, but said that "it's a question of how you pay for it, not if you pay for it."
Bonnie Spinazzola, executive director of the Atlantic Offshore Lobstermen's Association, polled some of her members who fish from 30 to 200 miles offshore in Lobster Management Area 3.
These fishermen said they have seen their premiums go up from 10% to 25% or 30% over the past year. Although the added cost does impact their bottom line, these fishermen would not even consider going out without insurance, Spinazzola said.
Greg Huba recently sold his offshore squid boat and is now driving the high-speed ferry between Point Judith and Block Island. The cost of insurance was one of the things that drove him out of business, along with an increasingly hostile regulatory climate, and his advancing age.
Huba said that, since the terrorist attacks last year, his insurance costs rose by 30%.
Chris Brown owns a trawler that fishes within 50 miles of shore and has experienced a 20% to 25% increase in rates in the past year. He stressed that when the premium cost increases, it's important to make sure the quality of the coverage stays the same because "you don't want to skimp on coverage."
Nonetheless, Brown said that 15-20 years ago "we were paying higher proportional rates and coverage was not as good as it is now."
Point Club
Brown credits the Point Club, the largest organized fishing vessel insurance and safety club on the East Coast, with "raising the bar on marine insurance."
The Point Club has been managed since its inception in 1986 by Ocean Marine Insurance Agency and has around 100 members hailing from Maine to New Jersey.
According to its web site, "The club's goal is to provide our members with the best marine insurance available at both favorable and stable prices."
Fred Mattera serves as the club's president and estimates that he and other members of the Point Club have seen rates increase around 15% to 25% in the last couple of years.
Nine months of the year Mattera fishes for squid between 50 and 250 miles offshore aboard his freezer trawler, Travis and Natalie. The rest of the year he works closer inshore.
Mattera blames tough federal restrictions on new boats for compromising the safety of an aging fleet that is becoming increasingly more unseaworthy.
Referring to the state of the economy and the overall insurance market, Mattera remarked, "We're in a valley right now, but hopefully things will turn around."
Future
Citing the cyclic nature of the reinsurance industry, insurance analysts believe that we will eventually come around to a point where the investment climate will improve, profits will go up, and reserves will be rebuilt. At that point they see a return to competitive pricing that will bring insurance rates back down.
However, those same analysts predict that higher reinsurance rates will continue at least through 2003, and that once the reinsurance market stabilizes, the primary insurance market will take longer to follow suit. N
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