ISO Products Perspective

Boats and motorcycles: A whale of a risk?

Unique exposures require vigilance

By Jeff DeTurris

"Yea, foolish mortals, Noah's flood is not yet subsided; two thirds of the fair world it yet covers."

—Moby Dick by Herman Melville

"Call me Ishmael." So begins the tale of a man's perils at sea on a ship called the Pequod sailing under Captain Ahab. Although it's not mentioned in the story, it's probably safe to assume that Ahab never thought about insuring his ship. However, that would have been only one of many bad decisions he made before he met his doom.

Now, as days begin to grow longer—one of the first signs of spring—it's time to ensure that such a mistake doesn't happen to your insureds. With thoughts turning to warmer-weather pursuits on water and land, your clients may be preparing a boat for its initial launch of the season or tuning up a bike so it's ready for a spin on that first balmy day. That means it's also likely the right time to check in with them to evaluate potential coverage needs for any boats, motorcycles, or other "toys" they may have purchased.

While many homeowners programs can accommodate watercraft risk, they typically provide minimal property damage and personal liability coverage. For example, ISO's base HO-3 contains a special limit providing a maximum coverage of $1,500 for loss or damage to watercraft. Included within this limit are trailers, furnishings, equipment, and motors.

Many personal auto programs can accommodate motorcycle risk if they are specifically written with the attachment of a miscellaneous type vehicle endorsement. However, they still may lack coverage for certain exposures, such as loss to custom equipment and rider safety apparel.

Covering such craft and vehicles under the same policy as your client's car or home could leave those insureds seriously underinsured and expose the agent to an errors and omissions lawsuit. Therefore, understanding the unique exposures of watercraft and motorcycles is important in this regard.

Writing watercraft risks involving a powerboat, sailboat, personal watercraft, or equipment used with such craft presents some unique exposures. Identifying the exposures is critical to determine adequate coverage and rating. ISO's Watercraft Policy WT 00 01 includes coverage for bodily injury and property damage liability, medical payments, and damage to covered watercraft and boating equipment.

The types of watercraft vary. Accurate rating of the craft can entail length of hull, method of propulsion (for example, electric or diesel), and total horsepower. Each insurer, through its underwriting guidelines and eligibility rules, is likely to establish limitations regarding the types of boats it is willing to write under its personal lines watercraft program—for instance, only those less than a certain length and/or those for which the owner does not employ a crew.

The age of the watercraft may be a rating criterion. If it's older, at issue can be how well the craft has been maintained: Can the hull stand up to ordinary weather, water conditions, or the rigors of normal use?

What is also important to understand is the value of boating equipment—anchors, dinghies, tenders, oars, or sails—to offer appropriate coverage for loss or damage. The presence of certain safety equipment, such as automatic fire detection systems or antitheft systems, may make the vessel eligible for a rate credit.

In colder weather, during a "lay-up" period when a boat is out of use and stored, the insured may be eligible for a premium credit, but typically there is also a requirement that the craft cannot be operated during this period and must remain stored in the lay-up location.

Personal watercraft, often referred to by one of several trademarked brand names such as Jet Ski, are recreational craft a rider sits or stands on. Agents may look to insure specifically and separately such vessels under a watercraft policy to provide proper coverage. According to the U.S. Coast Guard, in 2011, 44 people died on personal watercraft. The liability exposure involving passengers, swimmers, and other watercraft is a significant risk.

When evaluating motorcycle risk, there are several considerations to keep in mind. For example, some cyclists may view their potential to cause bodily injury and property damage to others on the road as minimal and request only minimum liability limits. Yet, as with personal watercraft, they should be aware of the passenger hazard. Higher liability coverage limits to address potential liability for injuries caused to a passenger or an endorsement to exclude the passenger hazard are some of the alternatives usually available.

Further, take the time to understand the value of equipment such as saddlebags, vehicle body/exhaust enhancements, and helmets, so you can help clients identify potential coverage needs.

Equally important, under some insurers' motorcycle programs, rating may be dependent on criteria such as the cycle type, MSRP, and engine size. In addition, some classification plans may allow for variation in pricing based on variables, including the insured's age and applicable accident and conviction surcharges. A number of insurers are focusing on greater refinement in rating for personal lines risks.

ISO's new motorcycle program provides for a stand-alone coverage form, specifically Personal Motorcycle Policy MT 00 01, and optional endorsements tailored for motorcycles, related trailers, and their equipment. Available coverage can encompass rider safety apparel, agreed-value loss settlement, and motorcycles used for business purposes. The ISO program also makes available endorsements to cover other types of recreational vehicles, such as snowmobiles, dune buggies, and ATVs. In addition, it offers uninsured and underinsured motorists coverages tailored, as appropriate, in view of related state requirements. Last, the ISO program addresses cycle type and other information for rating a motorcycle, and categorizes and displays such information by VIN, make, and model.

Understanding some of the unique exposures that motorcycles and watercraft present is an important step in helping to ensure that your clients acquire adequate coverage. Stand-alone standardized watercraft and motorcycle programs provide coverage features and rating components that can help meet those needs. With such coverage programs available, no one needs to risk being considered a "foolish mortal" again.

The author

Jeff DeTurris is assistant vice president, Personal Lines, ISO Insurance Programs and Analytic Services, a member of the Verisk Insurance Solutions group at Verisk Analytics.