Inland Marine Insurance: Assuring Property and Goods Move Forward

By Michael Perrotti

Though water covers more than 70 percent of the Earth’s surface, businesses engaged in marine shipping operations and logistics, and other businesses that manufacture and ship product still have a lot of ground to cover getting their various goods to their final destinations. The ocean marine insurance market, the oldest insurance market in the world, was initially developed to protect these goods while crossing the ocean’s open waters, later to morph into a product to protect all international transportation regardless of mode. In some instances, once the shipments hit land, the ocean coverage would stop, and, at least for imports into the United States, the Inland Marine insurance market would extend the transit protection.

Today’s marine insurance clients have considerable amount of business “on land” too. Inland Marine coverage is often as integral a part of their insurance portfolio as ocean marine coverage. And, as many companies have plans to expand their facilities, operations or services, Inland Marine coverage will likely play an even bigger role in marine insurance clients’ risk management program.

Understanding Inland Marine Insurance

The term “Inland Marine” is unique to the United States and is defined as an instrumentality of transportation or communication in an effort to distinguish what was eligible to be written outside of the standard filed property market. However, Inland Marine exposures are not unique to the United States and are written all over the world under the general marine classification. It is helpful to think of “Marine” or “Inland Marine” insurance as property coverage for property that is not permanently fixed in one place. If the property being insured is mobile in nature, and non-waterborne, whether it’s a crane, a piece of mobile medical equipment, a computer server or an oil painting in a museum, it’s an Inland Marine insurance exposure. Inland Marine insurance can also be extended to cover property possessing characteristics of constant change in exposure or valuation such as buildings in the course of construction or builders risks.

Today, Inland Marine includes many more types of insurance coverage than one might imagine. In addition to first party transit (owners interest), builders’ risk/course of construction, fine arts, computers, contractors equipment and mobile medical equipment, Inland Marine insurance also protects third party motor truck cargo legal liability (trucker’s liability for cargo), warehouseman’s and logistics third party legal liability, communications towers, and essentially any type of property that’s not fixed to a location.

Ocean Marine insurance primarily includes protection for the hull of vessels; international cargo; the liability associated with operating a vessel, wharf or shipbuilding facility, and legal liability for any negligence by the shipper, international carrier, stevedore or wharfingers operating the marine terminal.

Bustling Activity

About 60 percent of the inland marine insurance market in the United States consists of construction and transportation risks. Both categories are highly dependent upon the economy. When the economy does well, Inland Marine insurance is in high demand.

According to the 2017 Dodge Construction Outlook report, US construction starts were predicted to advance 5 percent to $713 billion. Commercial building is also on the rise, increasing 6 percent on top of the 12 percent gain for 2016. Plus, more funding support is expected from federal, state and local bond measures for infrastructure spending. More growth is also expected in the amusement category (convention centers) and transportation area, particularly terminals. Few would argue that there has been an increase in construction activities at many US ports and terminals as they prepare to handle larger vessels. This means that construction equipment and goods will continue to be on the move. Increased spending on construction also affects the transportation side of the Inland Marine business as goods and equipment need to be moved to the job site.

According to the American Transportation Association, more than 70 percent of all freight tonnage is moved on trucks in the U.S. Trucks also transported 58.3 percent of goods traded internationally between the US and Canada and 70.9 percent of goods traded between the US and Mexico in 2015. The expectation is that there will be about 8 percent growth in the trucking sector in 2017 and another 5-6 percent growth from now until 2020.

Emerging Challenges

Because the definition of what’s eligible to be covered by Inland Marine insurance is broad, newly emerging exposures tend to trickle to the Inland Marine insurance sector. For example, coverage for commercial drones and even pet insurance have made their way to the Inland Marine insurance space.

The lower regulatory environment allows the marine and Inland Marine underwriters to be creative to tailor products to the changing needs and exposures in the market. Expanded versions of older products or combined integrated products are appearing daily to help US businesses manage emerging risks. One example is the logistics and supply chain exposures of storing, handling, pick and pack, and transporting goods to meet the needs of the internet buying population. Supply chains can be complicated, involving many exposures that once had to be pieced together with the danger of gaps in coverage. Until recently, Inland Marine insurance products have not kept pace with the need to address logistics company’s risk management needs.

Carriers like XL Catlin are focused on addressing these risks with new, more comprehensive Inland Marine coverages for logistics risks. The new coverages enable companies to insure risks related to processing, packaging, consolidation, inventory control, transportation, warehousing and data management, more efficiently and effectively using one insurance policy form. XL Catlin’s Logistics Services Coverage Solutions, for instance, is designed for sophisticated and complex logistics companies and provides customized Inland Marine insurance coverage for all phases of supply chain management including almost all commodity types.

Current Market Conditions

Current Inland Marine rates are stable and projected to remain flat through 2020. The Inland Marine marketplace is competitive. Less regulatory environment, ease of entry, and historic profitability of Inland marine insurance entices new insurance companies to enter the market every year, resulting in ample capacity. The supply of capacity of course will continue to contribute to competitive pricing.

While there is no shortage of Inland Marine insurers, capacity, products or services, the trick is to find the right insurer, one equipped with knowledgeable qualified underwriting expertise and superb claims handling services.

The Author

Mike Perrotti, CPCU, AMIM is SVP, Inland Marine practice leader for XL Catlin. XL Catlin insurance companies offer property, casualty, professional, financial lines and specialty insurance products globally.

(As published in the September 2017 edition of Marine News)

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