Saturday, June 16th, 2012
Commercial Marine Insurance (also called Ocean Marine Insurance) is not a filed class of insurance business in the U.S.A., which means underwriters do not have to request permission from any government body to make changes in pricing or terms and conditions.
Further, most states recognize that commercial vessels travel outside state waters and therefore state jurisdiction frequently. Therefore their business activities cannot be legitimately controlled by state law. So Ocean Marine insurance is unregulated by state law.
(Yacht insurance is not strictly identified as Ocean Marine, instead is often defined as Personal Lines insurance, like homeowner’s or car insurance- and is not what I’m talking about here.)
No government interference or qualification means commercial marine insurance may be offered by anyone, whether a real and honorable concern or not. So over the years, fake “insurance companies” have gone into and out of business. The address of such a company may be a post office box on a Caribbean Island, or in Poland, for instance (real examples).
The impostor companies offer marine insurance at surprisingly low prices. They will often start out like gangbusters, and collect enough money to pay some claims at first, especially if they are on the small side and may be noteworthy in the marketplace. But soon enough, they are hard to contact when a claim is made, and then go out of existence. There are a few individuals who go into and out of business on a regular basis using new names for their fraudulent entities. They don’t seem to get caught and prosecuted often, because of the offshore element.
For the same reason of an open marketplace, and because Ocean Marine insurance premiums among the major players look substantial to the uninitiated, often what we also see are inexperienced but otherwise legitimate companies that can’t resist the temptation to get into this class of business without the commitment or knowledge it takes to stay in it.
Many readers may have personal knowledge and suffering at the hands of these lightweights, who also come into the market at low prices, known in the profession as ‘buying the business’. The individual underwriters who get permission from their legitimate employer companies to enter this class of business hope to rapidly attain large volume and stay ahead of the losses by growing ahead of them, until they capture a significant portion of the market, when they plan to raise the rates until they see a profit.
Of course this never works, because the real players are always fighting for the business among themselves anyway; and the first sign you see of this kind of scheme failing is the same as the fake companies: a strong resistance to proper service, that is, claims payments. (The ‘get the money and keep it’ method.)
A new method of trying to capture a portion of the commercial marine insurance clientele is to invent a new policy, untested by years of trying cases in the courts, written with vague and ambiguous language, but with a substantial carrier standing behind it. That the carrier has no previous marine experience is a given. The upper management may not even know they are in the marine insurance business. This kind of policy is also for sale cheap. In the last few years we have seen this scheme meet with limited success, and even be copied by at least one other real company, to try to compete. This approach is like flooding the car parts market with cheap parts from a foreign country that don’t fit when you try to use them. The answer is NOT to make cheap parts that don’t fit, here in our factories at home!
In any case, it’s caveat emptor- let the buyer beware- in the commercial marine insurance marketplace. Get insurance from someone you trust. And then verify. Ask him what carrier he’s getting the quote from, then check www.ambest.com which offers a free service to check on the company. Like choosing a restaurant, what matters is the quality of the food, not the cleverness of the ads. Ask somebody who just ate there how his meal tasted…