The devastation that Hurricane Sandy wreaked in late October on the Eastern seaboard and beyond is being felt weeks later and will continue to be felt across communities in New York, New Jersey, and Connecticut. The aftermath of the storm is much greater than we can imagine, including in the recreational marine community (marinas, boat dealers, yacht clubs and private pleasure boats and yachts) where Sandy is predicted to be the largest event in our history to affect this industry. The potential for boating damage is huge, with New Jersey alone having more than 163,000 registered vessels as of the second quarter of this year, according to the Marine Trade Association of New Jersey, a nonprofit trade organization promoting the recreational marine industry.
We spoke to Chris Pesce, president of Maritime Program Group (MPG), about the impact of Sandy on the recreational marine community, and what MPG is doing to help their brokers help insureds during these challenging times. MPG is a Program Administrator and ProgramBusiness.com Storefront, providing a full range of marine insurance products and underwriting services to its broker network throughout the United States. MPG specializes in protecting all types of marine-related assets across every category of marine risks including Recreational Marine, Inland Marine, and Ocean Marine. Through its Private Client Services the company serves the individual insurance needs of high net worth clients. MPG's nearly 60 employees are strategically located in offices nationwide, with primary offices in Westbrook, Connecticut and Manchester, New Hampshire.
Immediately after the storm, MPG distributed an email to its brokers and added special content to the Risk Management Resources section on its website to provide brokers with information to assist insureds with registering for federal aid, loss control resources and other relevant information to help them navigate through this difficult time. As the largest commercial underwriter of the recreational marine industry in the country, MPG is currently working on more than 900 Sandy-related claims that span from Maine through Maryland but are heavily concentrated in the coastal communities of Connecticut, New Jersey and New York and as far inland as Ohio.
Annie George (AG): With the large number of claims MPG is handling, you're seeing firsthand the devastation that Sandy has caused in the recreational marine community. Tell us about the effect on this community.
Chris Pesce (CP): "We have never seen an event of this magnitude before on the community, even when you look at some of the incredible storms that have occurred in the past, such as Hurricane Andrew that hit south Florida, the country's boating capital or even a Hurricane as destructive as Katrina. In terms of impact specifically to the recreational marine community, Sandy's damage trumps that because of the breadth and scope of the storm. It's uncommon to have such a wide area impacted, with boating communities in Staten Island, the South Shore of Long Island, the western part of the Long Island Sound, and Jersey Shore severely damage or, in many cases, completed destroyed.
"This is an event that no one quite yet fully appreciates except for those marine underwriters who are seeing the claim activity come through. But when all of these losses are aggregated over the coming weeks and months, people will begin to recognize this as the largest event in our lifetime to affect the recreational marine industry. Right now, it is predicted there will be 65,000 damage boats totaling over $650 million in insured losses and that's before you get to the millions in docks, autos, inventory, tools and equipment and wind related real property losses."
AG: Are most of these losses insured?
CP: "There's a big delta between the actual loss sustained and the insurable loss because of flood damage. In the marine world, flood is typically covered for boat dealers inventory, piers, wharves and docks, tools and equipment and the boats and yachts themselves. However, there are many marine owners who chose not to purchase flood coverage for their buildings and contents, which results in a large self-insured exposure. Many owners already were not doing so well in the last five or so years. The marine economy in many ways was depressed prior to Sandy. There are marina owners that don't have a strong balance sheet, and boat dealers with anemic sales. They haven't been in the position to self-insure their buildings for flood or to purchase the coverage. At the same time, no insured ever contemplated that the severity of such an event like this would occur. Many who took the risk won't be in the position to absorb this loss."
Chris, however, does emphasize that the recreational marine community is quite resourceful. "The industry as a whole is very hands-on with a community that employs many craftsmen and tradesmen that can do a lot of the work themselves. I have one insured, for example, that is without flood coverage and has extensive damage to his building, so he's putting his employees back to work, gutting their marine facility and rebuilding it themselves. I think we'll see a lot of owners who may not be in the position to lay out $100,000 to replace lost property, rebuilding themselves. This will be one way to close the gap between uninsured and insured losses in addition to any resources that may be available from FEMA."
AG: "How long do you think it will take for the community to rebuild?
CP: "In terms of timing, one bright spot in all of this is that most marinas in New England are not that active in the winter. They're not losing slip income because boats at this time are usually stored on shore. Therefore, there is a window of opportunity to rebuild, which is between now and May. But there are an awful lot of businesses that need a great deal of work done in a very tight timeframe. There will be a strain on dock builders, roofing contractors, electricians, plumbers and drywall contractors - all the various tradesmen needed to rebuild an industry. One of the unique things about the marine industry is that although you can bring in people from all over the country to do roofing, siding and electrical work, there is only handful of reputable dock manufacturers. Therefore, much of the recovery will be dictated by the group's ability to turn out docks. You'll see marine artisans - those that do ship work, dock building, etc. - in full demand working for the next 18 months.
"Another component to the recovery process is access to the communities, some of which have been wiped out. Many areas still don't have power, hotels are booked with contractors coming into the area and displaced homeowners. All of this is going to take time to sort itself out. What's more, one of the biggest outstanding issues is a state's ability to streamline the permit process. We have examples of this in Florida years ago when the governor passed emergency legislation stating that if a business is building what existed before, a permit was not needed.
"In our email, we're encouraging brokers to call on their legislatures and marine trade groups to lobby on their behalf to have permits waived so that the rebuilding process can be expedited. I do believe that the affected states will be responsive to this, as it's in their best interest to have a vibrant marine community up and running as quickly as possible."
AG: In your communiqué to brokers, you also provided critical risk management resources. Tell us about this.
CP: "Our goal in putting out the email is to help brokers help our insureds. As the largest underwriter of marine facilities in the country, we're quite proud to be leading the charge in helping to rebuild the recreational marine community. We're trying to help our brokers be in the position to help our clients. At a time when communication is still tough - phone lines are down, people are without electricity - insureds may not be receiving the word on what resources are available to them. We want to educate our brokers the best way we can by providing them with a list of FEMA locations where registration for federal assistance is available for uninsured losses and info on Individual Assistance (IA) or for SBA loans, so that they can reach out to clients and ease the pain a little bit and help steer them in the right direction. We're also providing them with guidelines on protecting a marina after a disaster and other key information, and will continue to post on our website relevant sources to help our brokers and the boating communities we serve."
AG: In terms of how this event will affect the insurance pricing of this industry moving forward, do you think this will be a catalyst for rate firming?
CP: "I believe it will certainly push the rates on the hardest hit coverages such as docks, inventory and equipment as well as on coastal real property. I can't imagine that underwriters aren't going to try and correct what has been an underfunding of dock premiums for the last 10 years. I think this will be a catalyst to get some level of correction."
For more information about MPG and its services, please visit http://www.maritimepg.com/. You can also access MPG's Risk Management Resources at http://www.maritimepg.com/brokerresources/riskmanagementresources.aspx.