Marine insurance is a niche full of niches. And while pricing trends reflect similar underlying issues across the board, some emerging classes boast distinctive qualities—and may surprise you.

Pricing Trends

On the commercial side, the marine insurance market is “very mature,” says Shawn Kucharski, president & CIO of Falvey Yacht Insurance. “What’s really driving the commercial side now is capacity—more insurers are finding that a 3-4% return on insurance is better than what they can do for a soft investment in a bank. With more capacity coming into the market for quite a few years now, that drives the rates down because the supply increases.”

“The market’s been slowly getting more competitive over the last 12 months,” agrees Paul Butler, president of marine insurance at The Hanover, which focuses on inland marine—an area Butler says is very construction- and transportation-based. “We’re still seeing some rate increases, but it’s certainly slowing down, and they’re much lower than they were 24 months ago.”

Why? Blame much of it on new entrants in the marketplace. “We’ve seen a lot of new entrants coming in, starting new marine units and adding additional capacity— making it a more challenging marketplace,” Butler explains. “And where pricing is concerned, it certainly hasn’t helped having basically no cats the last couple years, which invites naïve capacity.”

Kucharski says new players often pop in and out again once the market hardens and the rates start going up. “But in the meantime, they’re keeping rates low,” he says. And the yacht side of marine tells the same story: “You have new capacity coming in, and they’ll try something for a couple years and then they’ll come out,” Kucharski explains. “They don’t have staying power, but what they do is they keep rates down during that period.”

The post-Sandy marine insurance environment is an example. “Rates went through the roof for a year and a half, two years, and rightfully so,” Kucharski says. “That should have stayed. But what happens now is the rates come down because you have a lot of European-centric money that comes in for two or three years, keeps the rates low and then goes out, and everybody else is picking up the pieces.”

On the Horizon

Moving forward, the energy sector will have a big impact on commercial marine, Butler says. “We’ve seen more business coming in—new business as well as exposure increases, particularly in oil and gas,” he explains. “That will not only be in the traditional areas of Texas, Oklahoma and Louisiana but also in newer areas out West such as Wyoming and the Dakotas. We’ve also seen an increase in some of the alternative energy sector—the solar business and the wind business, particularly out in California.”

As usual, builders risk will continue to dictate much of the inland marine space moving forward. ”We will especially see more frame apartments being constructed as the building codes continue to change, and allow for four and five stories of frame apartments on top of a concrete podium,” Butler says. “This is significantly increasing the values of apartment construction risks.”

But the biggest developments will occur on the yacht side, where you can expect the appetites of a younger, sharing society to shake up the status quo. “The traditional owner who’s got a 35-foot yacht in his 20s, goes to a 45-foot in his 30s and a 55-foot in his 40s—that’s still going to be there, but less and less,” Kucharski says. “The younger demographic, the kids coming out of school who don’t own anything, they’re just used to ‘let me share this.’”

For younger Gen Xers and older millennials, purchasing a boat and adding it to a charter fleet that will pay you each month while still allowing you to use the vessel is a highly attractive option, Kucharski says. “30, 20, even 10 years ago, you said, ‘I don’t want anybody else on my boat,’” he notes. “Now, I don’t see anyone under 35 saying ‘I don’t want anybody touching my boat.’ I see them investing as opposed to owning—saying, ‘This is my investment. How do I maximize my return on this investment?’”

Whether it’s the Airbnb concept, fractional ownership or chartering, sharing will become “a substantial part of the marine industry in the coming decades,” Kucharski says. “That traditional product is always there, and that’s your core base. But the new products, the new evolutions in the industry—those are really picking up.”

For marine insurance sales strategies, keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter.

Jacquelyn Connelly is IA senior editor.