Gregory L. Sterck is chairman and CEO of Underwriters Marine Services in Metairie, Louisiana
Assessing and underwriting marine risks is a complicated and risky business that takes the specialized kind of knowledge that comes only from many years of experience. However, since premiums are high, it is a lucrative specialty that can yield big returns (but potentially bigger losses) on only a few accounts. In fact, the business has been likened to gambling, because of the high levels of risk/reward involved.
Gregory Sterck, chairman and CEO of Underwriters Marine Services, Inc. (UMS), in Metairie, Louisiana, is one long-time marine underwriter who is willing to play for high stakes. He can tell you what risks are involved, which coverages are appropriate, what kinds of loss prevention measures to employ and how best to handle sticky claims if they should arise.
His firm, UMS, is a managing general underwriting agency that specializes in brown-water commercial marine. For those unfamiliar with the term "brown-water," it refers to hull and liability coverage for tugboats, barges and other types of commercial vessels and businesses that operate primarily on or near inland and coastal waterways. However, UMS also has authority to write some blue-water marine coverages, such as cargo transport and marine liabilities, all over the world. (See sidebar on page 78 for more details on coverages.)
About the risks
UMS handles the underwriting function for primary coverages for Westport Insurance Corporation, a GE Capital company, and excess coverages for Lloyd's of London. Sterck is proud of the fact that it has binding authority from Lloyd's of $125 million--the highest in the world for marine liability risks. The firm also acts as a surplus lines broker.
During the past 22 years, Sterck's firm has specialized in customizing coverages for huge risks such as the following:
* A $100 million dry dock in tow of large ocean-going tugs from Japan to the United States
* Pollution and cargo coverage for a flotilla of barges transporting more than 100,000 barrels of crude oil, jet fuel or hazardous chemicals up the Mississippi and Ohio rivers from Louisiana to West Virginia
* $250 million in liability exposure from shipments of ammunition being transported from the United States to a foreign country (UMS has written unique cargo shipments of this nature as well.)
* Large excursion vessels loaded with dignitaries and celebrities to view the U.S. Bicentennial celebration in the New York harbor (UMS arranged well over $1 billion of liability cover for that day alone.) The firm also insured the barges holding fireworks for the celebration.
About the firm
UMS was formed in 1978 and has grown steadily over the years, now employing 22 people, 10 of whom are highly experienced specialty marine underwriters.
In addition to its home office headquarters in Louisiana, UMS has offices in New York City, Houston and Cincinnati, because most of its clients operate near the Mississippi and Ohio rivers and along the Atlantic coast. It also has a correspondent broker in London working exclusively with UMS on U.S. risks.
The New York office was a recent expansion, which involved the acquisition of a multimillion-dollar ocean cargo book of business and two highly skilled cargo underwriters. This move also gave UMS access to several new independent agents who were involved in that business--and gave those agents access to UMS's broad marine product lineup.
Although this was a new area of expertise for UMS, the firm was able to offer agents the same ability to customize coverages for ocean cargo risks that it has traditionally offered in other lines of marine insurance.
What's the appeal?
Sterck has been in the marine underwriting business for nearly 30 years, and he likes this specialty because of its unique challenges and the need for problem-solving skills. "Each risk is different," he says, giving the example of two tug boats operating from the New Orleans area. "These vessels may be exactly the same and operate on the same river, but they are still entirely different risks depending on the crew, where they go and what they tow."
Because of the high risks involved, marine premiums can be sizeable, with the average premium per account at about $100,000 and some accounts paying millions per year. However, losses can be catastrophic, particularly vessel pollution-related claims and passenger vessel risks. "In marine underwriting, most accounts have losses. The variables are how many and how large."
UMS has been successful in its specialty, even in a continuing soft market, due to its customized coverages and value-added approach to service. "My personal goal since day one has been to offer capacity, security, stability and expertise to the agents, brokers and clients we serve, because there has been a lot of carrier turnover and inconsistency in marine that affects capacity and stability," Sterck says.
The secret to success
At UMS, another critical differentiating factor is, not surprisingly, underwriting expertise. Of its 10 underwriters, eight have nearly 30 years' experience in marine. Sterck explains, "We require highly experienced underwriters to write the kinds of customized coverages required by our clients. Also, UMS underwriters are dealing with highly complex risks, so they have to know the business. It's the same on the claims side. We have an admiralty attorney on staff, which helps keep bad situations from blowing up in our faces."
UMS prides itself on its free-to-the-client personalized claims and loss prevention services, something many of its competitors do not offer. "Since these services do not directly produce revenue, insurers often see them as an unnecessary expense," says Sterck. "Also, many do not have the knowledge in brown water marine to offer loss prevention and sophisticated claims services. We see these services as invaluable additions. They not only protect the insurers we write for, but they help our clients reduce losses and the severity of claims."
Value-added is an approach that is paying off handsomely for UMS. In fact, while many marine underwriters are losing money or exiting the market, UMS is doing very well and expects to grow substantially over the next couple of years.
Looking at the opportunities
Many insurers have sought to get into the business because of perceived high returns. However, due to its complexities, they have made pricing and coverage mistakes that are coming home to roost.
"Many insurers dabble in marine underwriting, hopping in and out of the market," explains Sterck. "And, pricing is often erratic--one year they want "X" dollars and the next they want "X" plus 50. At the same time, mistakes can be quite deadly.
"Also, rates in general are too low because some insurers have moved away from underwriting fundamentals and have been selling strictly on price," he says. "In contrast, our results have been good and our business stable. We have a lot of loyal clients who appreciate our consistency and realize the lowest price often is not the best deal for them."
According to Sterck, insurers should not try to buy their way into this business, since good risks are hard to find and there's no huge margin to undercut. Excluding ocean cargo, it is only a $400 million-$500 million universe. "Starting from scratch is impossible; you cannot make money that way," he says.
As a result of these and other issues, Sterck believes that a lot of business is going to shift to specialists such as UMS.
Indeed, while lucrative, marine is a difficult business that requires commitment and expertise. As a result, both insurers and agents may want to think twice before jumping into the game.
Agents, too, require expertise
To date, UMS writes business with about 100 independent agents and brokers around the United States; most are specialists in the marine business. "We may deal with a few rural agents that have only one or two accounts--we help them write the business. But, in general, the E&O risks are too great for agents to simply dabble in marine."
As noted earlier, marine losses can be complex and catastrophic, so it is critical that agents know the business well enough to make sure there are no gaps in coverage between marine and non-marine.
Small and mid-sized risks, in particular, are often underinsured in limit or conditions. "I know of one tow boat that hit a bridge and dumped a train into the water," he says. "Unfortunately, there were multiple deaths. Luckily, the owner was well insured. But I know of several other boats that would not have had sufficient coverage. We have many insureds that buy several hundred million dollars in coverage."
He recommends that agents who are interested in selling marine hire someone who has been in the business for a few years. Sterck adds that these agents should have claims expertise as well as coverage knowledge.
The good news is that agents do not need many accounts to make a good living. "We work with some producers who have only four or five accounts, but they generate high revenue," he says.
What does it take for an independent agent to work with UMS? "We don't require agents to have volume contracts with our insurers; we're an open market to anyone," Sterck says. "They do need to be properly licensed and may need to be appointed with our insurers. We can help agents get into the business if they are willing to make the necessary commitment to learning about the business and hiring expertise--commitment is the key word." *
Underwriters Marine Services, Inc., acts as a managing general agent and Lloyd's coverholder with authority from its insurers to underwrite a wide variety of marine insurance risks. The firm writes both primary and excess coverages on tug boats, barges and other types of commercial vessels. It also writes coverages for cargo owners, shipyards, fleetors, ports, terminals and other marine-related operations. Coverages include:
* Brown Water Hull, Protection & Indemnity
* Commercial General Liability/Marine Liabilities
* Vessel Pollution Liability
* Maritime Employers Liability
* Excess Marine Liabilities
* Short-Term Excess Pollution and Excess Protection & Indemnity
* Cargo--both ocean and inland (up to $30 million)
UMS also offers these specialty coverages:
* Direct or Contingent Tour Liabilities on Cruise Lines
* Breach of Warranty/
Mortgagees Interest
* Innocent Owners Coverage
* Port Risks
* Contingent Marine
* Cargo Owners and/or Charterers Pollution Covers
* War Hull &P&I
* Casino Risks
* Increased Value, Disbursements & Excess Liabilities Cover
* Marine Professional Negligence Liability
* P&I Club Placements
* Cargo coverages are designed for importers/exporters with ancillary coverages for inland transit, storage and stock-through-put exposures.
For more information
Underwriters Marine
Services, Inc.
Metairie, LA
Contact: Gregory L. Sterck
(504) 828-6311
Email: gregory_sterck@underwritersmarine.com
©COPYRIGHT: The Rough Notes Magazine, 2000