The Best’s Market Segment Report, titled, “Economic Growth and Specialization Bolstering Inland Marine Expansion,” states that the segment historically has been one of the most profitable and consistent property/casualty lines of business. Ongoing growth in the construction and freight industries is increasing demand for inland marine coverage, as evidenced by year-over-year premium growth that has exceeded 8% in three of the last five years. The amount of goods being shipped is tied directly to the vibrancy of the inland marine market. A second major component of the inland marine line is property under construction and the equipment used for it. Total construction spending in the United States has been rising steadily since the first quarter of 2011, according to Federal Reserve economic data, reflecting the cost of not just new construction, but also renovations for residential and nonresidential building. Ongoing construction industry growth especially will benefit those inland marine insurers writing construction and contractor coverages (e.g., builder’s risk, contractors equipment and installation floaters).
The property/casualty industry has been more successful underwriting and pricing risks in the marine segment—with a 20-percentage-point advantage in the loss and loss-adjustment expenses ratio—than in its overall portfolio. These results are due mainly to the specialization of inland marine underwriters—those whose inland marine coverage represents their core business. Since 2012, the highest combined ratio in the inland marine segment has been 89.9 (in 2017), which is indicative of strong profitability.
A key issue affecting the market is adverse loss experience, which has arisen from catastrophic fires in major metropolitan areas and water damage claims. A downside to the growth in the number of larger construction projects during the economic expansion of the last decade has been the proliferation of these types of losses, and companies underwriting builder’s risk exposures have felt the impact acutely. In addition, the favorable segment results have led to the entry of new players looking to gain a foothold in the market. This has intensified competition and caused rates to decline, which could constrict profit margins over the long term.
Insurance technology likely is to help bring down high expense ratios in the inland marine segment and make it possible for insurers to provide coverage solutions for a larger number of risks—specifically more of the smaller, one-off inland marine exposures for which the expense of underwriting has traditionally outweighed the potential benefits of building a portfolio.