Best’s Market Segment Report: Economic Growth and Specialization Bolstering Inland Marine Expansion

The inland marine insurance segment has grown steadily in the past
decade in tandem with increases in construction spending and the
transport of goods, with direct premiums written nearly doubling to
$24.5 billion in 2018 from $13.3 billion in 2009, according to a new AM
Best special report.

The Best’s Market Segment Report, titled, “Economic Growth and
Specialization Bolstering Inland Marine Expansion,” states that the
segment historically has been one of the most profitable and consistent
property/casualty lines of business. Ongoing growth in the construction
and freight industries is increasing demand for inland marine coverage,
as evidenced by year-over-year premium growth that has exceeded 8% in
three of the last five years. The amount of goods being shipped is tied
directly to the vibrancy of the inland marine market. A second major
component of the inland marine line is property under construction and
the equipment used for it. Total construction spending in the United
States has been rising steadily since the first quarter of 2011,
according to Federal Reserve economic data, reflecting the cost of not
just new construction, but also renovations for residential and
nonresidential building. Ongoing construction industry growth especially
will benefit those inland marine insurers writing construction and
contractor coverages (e.g., builder’s risk, contractors equipment and
installation floaters).

The property/casualty industry has been more successful underwriting and
pricing risks in the marine segment—with a 20-percentage-point advantage
in the loss and loss-adjustment expenses ratio—than in its overall
portfolio. These results are due mainly to the specialization of inland
marine underwriters—those whose inland marine coverage represents their
core business. Since 2012, the highest combined ratio in the inland
marine segment has been 89.9 (in 2017), which is indicative of strong
profitability.

A key issue affecting the market is adverse loss experience, which has
arisen from catastrophic fires in major metropolitan areas and water
damage claims. A downside to the growth in the number of larger
construction projects during the economic expansion of the last decade
has been the proliferation of these types of losses, and companies
underwriting builder’s risk exposures have felt the impact acutely. In
addition, the favorable segment results have led to the entry of new
players looking to gain a foothold in the market. This has intensified
competition and caused rates to decline, which could constrict profit
margins over the long term.

Insurance technology likely is to help bring down high expense ratios in
the inland marine segment and make it possible for insurers to provide
coverage solutions for a larger number of risks—specifically more of the
smaller, one-off inland marine exposures for which the expense of
underwriting has traditionally outweighed the potential benefits of
building a portfolio.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=285677.

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
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