More than 30 years ago, Greg Sterck and two partners saw an opportunity to bring consistency and capacity to the brown-water commercial marine market-place. From this vision was born Underwriters Marine Services (UMS), a Metairie, Louisiana-based managing general underwriter serving clients in North America and Europe.

Not long after its creation, UMS acquired a competing firm that traced its roots to the late 1800s. “We have many, many clients that have been with us for the 30 years-plus—and some even longer, because of the acquisition,” says Sterck, company chairman and CEO. “Today, our retention ratios remain well over 90%.”

The company continues to serve the brown-water marine marketplace, offering hull and liability coverage for tugboats, barges and other commercial vessels and for businesses operating primarily on or near inland and coastal waterways. The firm also can write some blue-water marine coverages, including cargo transport and marine liabilities, worldwide. (See sidebar on page 120 for more coverage details.)

Today UMS employs 18 professionals at offices in Metairie, Houston and New York, and has a correspondent in London. “Nearly all of our employees have been with us 20 years or more,” Sterck says, “and most of our underwriters have 30 years or more under their belts.” This depth of industry and product knowledge serves the market well, he comments.

This experience is valuable, because, as Sterck adds, “The market is pretty tough. We’re in a very specialized niche, but it’s not just our niche, and like most lines of insurance, rates are pretty soft right now.”

Over the years, UMS has seen the brown-water marine industry evolve. “The vessels we insure are, for the most part, much more advanced than they were, even a few years ago,” Sterck explains. “A lot of technology has been added.”

Vessels are much better equipped for navigation, with more sophisticated engine monitors and electronic charting. Computer technology plays a greater role, as do more advanced satellite capabilities.

“It used to be a pretty free-wheeling business until the ’90s, with very little communication with the vessels,” Sterck recalls. “They could be on the river or in the Gulf for weeks at a time, with virtually no interaction with their home base.” That’s all changed. “Today, companies know where boats are every second and can track cargo shipments every step of the way,” he says.

This increased sophistication has led to higher property values for brown-water risks. “It used to be unusual to see a towboat on the river worth more than $3 million or $4 million,” says David Manion, UMS vice president and senior underwriter. “Today it’s not unusual to see a $10 million to $12 million towboat or river line boat. Barges, which carry petroleum and other liquids, used to be valued at $1 million or $2 million. Now, a new river tank barge can cost $4 million to $5 million, and we recently wrote a Great Lakes tank barge valued at over $20 million.”

Offshore supply boats, or utility vessels, which supply water, drilling mud, drill pipes, supplies and more to rigs in the Gulf, were worth a couple of million dollars in the 1970s, Sterck recalls. “Today it’s not unusual to see a sophisticated supply boat valued at $50 million and up.” The size and sophistication of these vessels increased as drilling operations moved further off shore and into deeper waters.

“All of these changes have affected premiums, but they’ve also affected losses,” Sterck explains. “Losses today are certainly larger than they used to be.” While severity is up, frequency is down. “It has always been a severity-driven class of business,” notes Manion, who joined the firm in 2006 after holding underwriting and product management posts with two global marine insurance carriers. “If you have an account with a frequency problem, you’ve got a real problem, but the severity has certainly gone up.”

A primary Protection & Indemnity (P&I) watercraft liability policy generally carries a $1 million limit. “A million dollars just doesn’t go as far as it used to, considering escalated medical and litigation costs,” Sterck remarks. “Crew members are generally making a lot more money than they did five years ago. We saw a big spike after Hurricane Katrina.”

For example, he says, “A deckhand today makes $40,000 to $50,000 a year, and a captain makes more than $100,000. Those amounts were unheard of 10 years ago.”

Salaries are up for several reasons. First, post-9/11 changes in U.S. Coast Guard licensing requirements pared down the pool of qualified personnel. Second, fewer people are interested in the work. “These are tough jobs,” Manion notes. “Unless they are on a lunch-bucket boat, they are out for 21 or 28 days—24 hours a day.”

As businesses add vessels to their fleets, Sterck observes, they need more crews and crewmembers. “And when it’s impossible to hire good people, they steal one from another company and have to pay them more,” he notes. “Plus, just like the vessels, people working on them need to be more educated and sophisticated.”

Another factor driving staffing issues is the need for Homeland Security clearance. “After 9/11, crew members had to get Transportation Worker Identification Cards because they are dealing with hazardous commodities,” Manion notes. “New security zones and increased reporting requirements also have driven up the cost of doing business.”

While UMS does not insure drilling rigs, the BP Horizon deepwater rig explosion earlier this year affected the firm’s clients. “Some of our insureds ended up with extra work,” Sterck says. Because many clients maintain headquarters in the Gulf area, work associated with cleanup provided opportunities for some operators to expand their business.

“Some businesses we insure have been actively involved in the cleanup,” he comments. “We’ve actually enter-tained a significant amount of new business, because new fleets were being assembled by contractors trying to get cleanup work. That said, we have resisted writing some of those risks, particularly newer operations.” To the extent that existing clients were expanding operations, however, UMS worked to put insurance in place to help them get the business.

Although some UMS clients benefited, the explosion and sub-sequent spill hurt other clients. “Since the accident, we’ve seen a marked decrease in interest among oil companies to spend money to run exploratory wells,” Sterck says. “And with the drilling moratorium, they’re not even allowed to run wells in deep water. So work has been post-poned, and many of the vessels we insure, which would service those rigs and jobs, are sitting idle. Even shallow water work is off, with natural gas prices being so low. It’s a real mixed bag.”

One of the greatest impacts of the Gulf spill may still be playing out. “A lot of the marine markets were on that risk, or ones like it,” Manion says.

Adds Sterck, “U.S. players and, of course, Lloyd’s were on the risk. Marine and energy are generally written in the same book. So indirectly, it has to have an effect. It has already shown up in the energy business, and it is logical to assume we will see a broader impact that extends to related lines. At some point, the market won’t be able to sustain these losses,” Sterck says.  

Manion continues, “There’s only a limited amount of capacity, and events such as the one in the Gulf could serve to reduce capacity and, as a result, signal a pricing rebound.”

Despite fluid market conditions, UMS carries on. “We’ve been in this business long enough that we’ve seen it all and survived it all,” Sterck remarks. “We recognize that every risk is different, regardless of how similar they might appear at first glance.

“We’ve been able to consistently bring to market a range of coverages that are customized to the brown-water marine commercial operators we serve,” he adds. “And we’ve been successful in getting the high limits they require.” UMS has $500 million capacity available for excess marine liabilities.

This consistency contrasts with what Sterck has observed in the market. “We have seen carriers come in,” he notes, “and they got fairly loose with their underwriting. Then they got burned, and ended up changing their underwriting—trying to raise rates and become more selective in what they write.”

Some learned hard lessons. “Our business is going to have losses,” Sterck says. “There’s no two ways about it.” Adds Manion, “Some of the newer players have seen that a major accident can be very expensive—producing losses far greater than they ever dreamed of.”

That said, the business continues to attract new entrants. “There are a few players lately that have undercut more established firms, and have kept the market somewhat soft,” Sterck says. “We’ll see what happens there. I just wonder how they’ll continue to be a viable market going forward.”

Fortunately for UMS, the company does not rely solely on its underwriting experience and product expertise. The firm complements these advantages with what Sterck describes as consistent, effective loss control programs, as well as other post-underwriting services.

“We have a full-time, in-house loss control specialist who is a licensed surveyor and a licensed captain,” he explains. “He is a real industry veteran, and we provide his expertise as a free resource to our clients. They really value that tremendously. He’s a guy they can talk to and, best of all, he’s probably experienced whatever problem or situation the customer is facing.

“We also offer sophisticated claims services, again at no cost to our insureds,” Sterck adds. “While these don’t generate direct revenue, they play an important role in helping our insureds reduce losses and, when they do occur, recover more quickly. In addition, they help strengthen the relationship we have with our insureds, and the agents and brokers that represent them.”