SPECIALTY LINES MARKETS

Recreation on land and sea

Economic pressures inhibit growth, but specialists still see opportunities

By Phil Zinkewicz

The recreational vehicle industry—boats, yachts and RVs, for example—suffered greatly from the high price of fuel early last year. Then, as 2008 ended and the political solons finally admitted that we were in the middle of a recession, the crisis economy became the primary element that was negatively affecting this adult toy market.

Earlier this year the Recreational Vehicle Industry Association (RVIA) posted business indicators on its Web site showing that after five consecutive years of record growth, RV shipments dropped 9.5% in 2007 to 353,400, and that as of November 2008, shipments were down 30.1% from 2007, due to “the tightest credit conditions in several decades, higher interest rates, falling consumer household wealth, slower growth in real incomes, and the crisis in consumer confidence.”

According to the RVIA, 2009 shipments are expected to be lower as well. “Credit restrictions are causing RV buyers to delay purchases and RV dealers to keep inventories low.” Dr. Richard Curtain, director of Consumer Surveys at the University of Michigan, predicts that 2009 RV shipments will total 186,800. On the positive side, the RVIA reports, primary demand for RVs remains robust; RV campgrounds and rentals are “holding their own despite difficult economic conditions; and population and demographic trends favor long-term RV growth.

On the boating side of the pleasure craft industry, things are not much different. Cary Breese, CEO of Trafalgar Marine Insurance Services, an independent managing general agency specializing in recreational marine insurance for pleasure craft and compatible commercial marine products nationwide, says that boat sales were off in the first part of 2008 and, with the financial crisis, new boat sales now are down 30% to 50%.

“Boat dealers are going out of business or struggling to stay alive,” says Breese. “Most projections are that these conditions will persist throughout 2009. As for the insurance industry, we are somewhat buffered from all that in that most of our business is on existing contracts. We’re experiencing a slowdown, but things are not as bad for us as for manufacturers and dealers.”

On the sunnier side, the gas crisis benefited the sale of sailboats. And, the sale of boats on the high end hasn’t suffered from the financial crisis. “High-end boats and mega-boats seem to do better whether there is a recession or not,” says Breese.

Jim Griffith, director of personal lines for Burns & Wilcox, says, “With the state of the economy where potential buyers have much less disposable income, nationally sales are down. Also contributing to these declines is last year’s significant increase in gas prices.”

Burns & Wilcox’s headquarters are in Michigan, where there are large numbers of registered watercraft as well as several in-state boat manufacturers. Griffith says statistics from those manufacturers “point to fewer watercraft being registered and fewer being sold. However,” he adds, “one end of the industry that isn’t seeing such a significant decline are units that would fall in the high end of the market. Luxury yachts and upscale RVs typically are not seeing such significant declines in sales.”

Matt Anderson, marketing director for Global Marine Insurance Agency, which insures only boats and boat and yacht dealers, says that the new boat market has been having difficulties for the last couple of years, and the worsened recession has made things even more difficult. “The challenge for us is to grow our business in this troubled market,” says Anderson. “Sailing vessels is one of the few product lines that seem to be doing well.”

Anderson doesn’t believe that the gas crisis hurt the boating industry all that much. “Despite the higher cost of gasoline, people were still using their boats,” he says. “They just took shorter trips rather than long ones. They just adjusted their sailing schedules.”

And, while the new boat business is retrenching, used boats sales are increasing, says Anderson. “There are some boat dealers around that are coming up with nice deals in used boats. Especially in the area of freshwater fiberglass boats, the vessels last longer and insurers find them to be good risks. Saltwater vessels are less appealing to insurers because they tend to suffer more damage from the salt.”

Jim Park, director of sales and marketing for Seahorse Underwriters, a market dedicated to marine insurance business and designed specifically for agents, describes the current market for boat insurance as soft overall. “We’re not seeing a lot of new business,” Park says. “Boats are luxury items and people today are tightening their belts. That is not to say that people who have boats are not using them. The die-hard boaters wouldn’t give up their vessels for anything.”

Craig Schneider, of Bruce V. Schneider Associates, says that his agency can insure anything on the water. “We can handle everything from the old vessel to the high-powered motor boat. We literally do all kinds of marine exposures.”

Schneider says that the fall off in the sale of new boats hasn’t affected his agency as yet. “There has been a surge in the used boat market and we’re concentrating on that area.”

Apart from the economy and its effects on boat sales, Schneider is concerned about the safety aspects of boating. “There are no traffic lights in the water, no stop signs. The water police don’t even insist that boats are insured, although banks will insist upon it before granting a loan. We live in a litigious society.

“Today, a good many marinas are requiring that their tenants have liability insurance, at least,” Schneider continues. “Also, some states are moving towards requiring boat owners to take a safety course to teach them how they can show off their toys and still remain safe.”

Breese agrees that marinas have become more diligent in requiring their clients to have liability insurance. “There is the litigation issue to consider. After all, marinas take care of the boats all year round.”

Finally, Anderson says that he is seeing an increase in the number of agents who want to get into marine insurance. “They want to round out their accounts, so they’re coming to us because we have the experience.”