Student Essay on The Effects Watercraft Destruction in 2004 to the Insurance Market

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The Effects Watercraft Destruction in 2004 to the Insurance Market

Summary:   A basic analysis of the damage done to the watercraft market in 2004 due to the hurricanes.

Essay 2

The Effects of Watercraft Destruction in 2004 to the Insurance Market

During the hurricane season of 2004 there were four significant

hurricanes that made landfall and caused significant damage to the

watercraft industry. According to Cary Breese, ACAS president of Trafalgar

Marine Insurance Service, Inc., this was an extremely rare occurrence,

which was estimated to happen only once every 150 years. This estimate was

determined by placing the figure into a catastrophe modular. The

watercraft industry took a big hit, with damages estimated at approximately

$680 million. Due to extensive damage, insurance companies had to think

decisively about reinsuring many of their customers. In the Midwest United

States substantial damage was done to marinas due to snow. Since the

watercraft industry took such a hard hit in 2004 insurance companies are

hesitant to cover watercrafts and their marinas.

Larger insurance companies may have to increase their coverage cost

since they had to pay out so much money to cover the extensive damage.

Smaller, newer insurance companies may have to raise their rates too, but

they now have the opportunity to get more customers because of the price

increase of peoples past insurers. The insurance companies and

underwriters will have to consider raising their rates only in the

southeast and midwest or raise the rates across the nation. Many of the

suppliers of watercrafts also took a big hit; this will give insurers a

fewer amount of products to cover. According to Joe Cecchini, CEO of

Western Maritime Insurance Services, two factors will determine watercraft

sales in2005, the economy and fuel prices.

"The marine insurance industry is still absorbing the impact of the

storms and the reactions are slow and becoming apparent," says Timberlee

Tamaraz Grove, CPCU, president/COO of Markel American Insurance Company.

Companies that have been exposed to the type of damage in 2004 may have

reinsurance programs already in action. Due to the unlikelihood of this

type of catastrophe to happen again insurance companies will have enough

time to rebuild and drop price increases. Most companies will have to put

a hold on starting new business and will have to raise the storm deductible

price. Many watercraft owners will have to sell their watercrafts because

they cannot meet their insurance needs.

The interpretation of the effects this catastrophic season has caused

has yet to be determined and will probably not be determined until well

into 2005. The watercraft repair market has been flooded with business from

people who have suffered loss. Majority of the income used to pay for

repairs has been disbursed from insurance companies. Watercraft damage is

just a portion of the money that insurance companies pay out due to the

damage in 2004. Other industries' losses will also have an effect on the

price of insurance coverage, like the hospitality market.

Work Cited

France Larry G. "Watercraft: Insuring boats, personal and

recreational watercraft, and yachts."Roughnotes magazine Feb. 2005: 1-9