Ron Thornton likes to tell the story of a commercial underwriter who agreed to add a cargo coverage form faxed by an agent onto a commercial package policy, only to have the act result in an unexpected $250,000 loss, wiping out years of margin on the account.
It was a well-intentioned property underwriter doing a favor for an existing client, says Thornton, president of the Inland Marine Underwriters Association (IMUA), the trade association representing inland marine carriers and
professionals.
As with many such gestures, he says, the cargo form was added with little or no knowledge of what it said, little or no understanding of the potential exposure, and little or no compensating premium charge.
In another case, Thornton says, an agent faxed a multi-page inland marine form to a property underwriter, but left out the even-numbered pages (they were on the reverse of the pages that were faxed).
Not familiar with the form, the underwriter endorsed it onto a policy without the even-numbered pages. When a claim occurred, the company had a knotty question of how to apply provisions on pages that had never been attached to the policy in the first place.
These anecdotes by Thornton provide examples of how commercial lines generalists can miss the mark when they write inland marine coverage, according to inland marine specialists.
In their eyes, a generation-long consolidation of inland marine underwriting from specialized departments into commercial property departments has eroded some of the received wisdom in the line.
“With the change from specialist to generalist in many companies, there’s not the level of training and market knowledge there used to be,” says Thornton.
“When I started in the late 1980s there were still a lot of companies with inland marine departments,” says Arthur Flitner, vice president of the American Institute for CPCU and the principal developer of the curriculum for the Associate in Marine Insurance Management (AMIM) designation offered by the Insurance Institute of America.
“Today, you’re hard-pressed to find an insurer with an inland marine department,” Flitner says. “For the most part, inland marine [underwriting] has been folded into commercial property or commercial package underwriting.
“Even veteran inland marine underwriters have had to
face the reality that there were no longer inland marine departments and that they had to work in the larger context of commercial lines.
“We probably lost some of the really good inland marine underwriters,” he continues. “It’s become more of a challenge to keep intact the body of knowledge [they had].”
The consolidation of inland marine departments may be slowing as a renewed emphasis on underwriting profitability leads to a renewed appreciation for the unique nature of inland marine expertise.
Sophia Phillips, vice president for commercial lines-marine in the Itasca, Ill. office of The Hanover Insurance Group, says there has been a resurgence in admitted marine specialty markets, and an increased demand for inland marine specialists.
“Agents want to deal with marine specialists,” she says. “If you want the better business, the more profitable business, you have to have specialists.
“If you’re not hiring more specialists, you’re not perceived as serious about inland marine.”
Still, there is no doubt that a substantial amount of inland marine business is underwritten by property or package underwriters for whom inland marine is but a small part of the business they write.
According to inland marine specialists, those commercial generalists demonstrate several general tendencies when underwriting inland marine coverages.
“There is a tendency [among commercial generalists] to use the marine to get to the price they want,” says Phillips.
In other words, over the prolonged soft market, there was a tendency to throw in inland marine coverages with a property policy or commercial package, often with little more than a nominal premium charge--or none at all.
This has been done because inland marine often accounts for only a small fraction of the premium for a property account, let alone a full package.
There was less appreciation, until recently, for the fact that inland marine was a highly profitable line that could provide a larger share of the margin on an account relative to its share of premium.
A growing appreciation for the profitability of the line has suppressed the impulse to give away inland marine coverage, says Thornton, but the people writing accounts don’t always have the necessary expertise to price exposures effectively, he says.
Another tendency of commercial generalists cited by inland marine specialists is their tendency, in Phillips’ words, “to base premium on the limit rather than the exposure.”
That shortcoming is especially evident when transit or cargo coverage is included in a commercial package. Commercial generalists commonly price the coverage according to the limit without examining what is being shipped.
“Package policies will often have specific limits for transit exposures,” says Pat Stoik, vice president of commercial inland marine for the Chubb Group of Insurance Companies, Warren, N.J.
“Those were instituted to capture incidental exposures, but have grown,” he says. “What were once incidental limits have become meaningful limits.
“Now we’re talking about transit limits of $500,000 or $1 million,” he continues. “The loss of one valuable shipment can blow your profit on an account for the next five years.”
“Regarding transit coverage, the marine underwriter knows the key isn’t the limit, it’s the value of the shipments,” says Robert Guevara, vice president of inland marine at AAIS.
Much the same holds for coverage for electronic data processing and warehouse legal liability where, the higher the value of the insured property, the greater the chance of a loss up to the coverage limit.
“You are much more likely to hit a $1 million warehouse legal liability limit when you have $10-$20 million in storage,” says Phillips.
Small tools is another class where non-specialists commonly fail to price an exposure adequately, according to Phillips.
It’s common for commercial generalists to establish a $250 deductible for small tools coverage, not understanding the full value of tools and the extent of loss to them.
With tools, says Phillips, “you’re insuring an entire schedule.
“If a guy has a half million dollars worth of tools in a $10,000 storage container, that’s much deeper than a work box,” she says.
Installation coverage, which covers property being installed at a purchaser’s location, is another type of coverage where commercial generalists commonly can easily take on more exposure than they bargained for, says Flitner at the American Institute.
According to Flitner, commercial generalists have been known to provide incidental installation coverage to large manufacturers that install their own products, exposing themselves to huge losses.
As a line of insurance, inland marine is, some ways, a series of smaller lines, called classes.
Learning the nuances of the individual classes is admittedly challenging and sometimes hard to justify when inland marine premium is small relative to other types of coverage.
However, the contrast between how commercial generalists and inland marine specialists underwrite the line derives from more than the latter’s knowledge of inland marine particulars.
It is an entirely different approach to risks, say inland marine specialists.
“It’s a whole different discipline of thinking,” says Phillips. “A marine underwriter is taught to take a risk and underwrite it. A package underwriter is taught to fit a risk within certain guidelines.”
“There’s a tradition in inland marine of being very flexible because you don’t see the same risk twice,” says Stoik at Chubb. “Also, inland marine rating plans have a significant amount of judgment.”
So why do inland marine specialists care if commercial generalists don’t write the line effectively?
For one thing, they don’t like being put at a competitive disadvantage
“There is concern regarding coverages that [property or package underwriters] don’t really understand,” says Guevara at AAIS. “It sometimes puts marine specialists at a competitive disadvantage.”
Beyond that, Thornton worries that a tendency of commercial generalists to lump inland marine with other property exposures and coverages is eroding the quality of data collected for the line.
“The percentage of [premium for inland marine] business reported as ‘miscellaneous’ or ‘unclassified’ has grown in recent years,” he says. “Major companies are worried that the data is being compromised.”
Since most of the nonfiled classes are judgment rated, how can you make accurate judgments?
Guevara agrees that better segregation of inland marine
coverage, and better reporting of inland marine data, would improve the accuracy of pricing in the line.
“Among the companies that prefer to package coverage, the inland marine data is often lost in the numbers reported commercial multi-peril,” he says. “Within the data reported for inland marine, the third or fourth largest class is the one labeled ‘Not Otherwise Classifed.’
“That’s become a big melting pot of a class that complicates analysis of the profitability of business.”
What would inland marine specialists recommend to companies that have commercial generalists writing inland marine coverage?
“You can’t give up on education,” says Thornton at the IMUA. “You should designate some employees to at least get textbook knowledge of inland marine.”
Flitner credits the IMUA, along with the American Institute of Marine Underwriters, an ocean marine trade organization, for championing the creation of the AMIM curriculum that Flitner maintains.
“It’s truly an extension of the two trade organizations,” Flitner says. “If not for the IMUA, it’s hard to say how much inland marine knowledge would be intact and accessible today.”
Apart from having underwriters take the AMIM program, Flitner offers three pieces of advice to underwriters seeking to building their knowledge of inland marine:
- Find an older mentor familiar with traditional practices in
the line;
- Use the educational and reference resources provided by the IMUA to its members; and
- Use the AAIS Inland Marine Guide to policy forms and rating procedures for the nonfiled classes
The AMIM curriculum addresses classes and coverages found in the Guide.
Stoik, whose duties include oversight of the training of inland marine underwriters at Chubb, offers some blunt advice of his own.
“Don’t be afraid to pick up the phone and ask someone with the expertise,” he says. “You’re an underwriter and it’s your job to ask questions.
“The only stupid question is the one you failed to ask.”
Specialists on generalists 
