BY MIKE MARROCCOLI
If you are a fisherman, you are well aware of how important it is to understand all the factors influencing your voyage. Before you set your boat out to sea, you must know the weather forecast, the currents, when the tide will ebb and flow, and even the depth in which you’ll be fishing. Your ability to safely and successfully navigate depends on arming yourself with all the information you can.
Similarly, the ground transportation industry now has to prepare itself for a voyage into the choppy waters of a “hard” insurance market. The cyclical nature is nothing new—we were there about 15 years ago as well—but this, unfortunately, means that insurance costs and renewals will be increasing and may make obtaining insurance extremely challenging in some cases, especially for those who have had poor loss experience. Operators and their management teams should be planning ahead, looking at the effects of increased insurance premiums on your business model, and strategizing ways to minimize this insurance market’s long-lasting impact.
You may have seen changes or heard stories, and are wondering what is happening. The insurance marketplace for limousine and bus operators has drastically changed over the past year. Annually, we utilize the strength of our marketing power to negotiate rates for our clients; historically, insurance carriers would gladly compete for the business. However, over the past four years, we have seen a significant number of them withdraw from the market while the remaining carriers have become increasingly cautious or have established limitations and restrictive criteria for the fleets they are willing to insure. This change in the supply side of the equation is resulting in the “rough seas” and insurance difficulties throughout the industry.
What’s Driving Costs?
There are a number of reasons why insurance premiums are escalating. Underwriting profits of most insurance companies in this industry have been below projection, largely due to unfavorable loss experience driven by both severity and frequency of claims. This, along with lower-than-projected investment income and increased reinsurance rates for carriers, has resulted in the necessary increase of premiums. Insurers will continue to see profit margins pressured because of these issues, and that cost will be passed on to the consumer so the carrier can remain financially stable.
You might be thinking, “But I’ve had little or no claims at all—how can this be?” It may be true that your company has had good loss experience, and that is a great position to be in; however, across our industry, rates over the past several years have been insufficient to pay claims. In some areas of the country, claims develop that result in significant payouts by your insurance company. This may be linked to the litigious nature of a geographic area or due to aggressive postures taken by plaintiff attorneys and large awards from jurors who are historically sympathetic to plaintiffs.
I review hundreds of claims for my clients when I examine their loss runs for each policy period, and I often see minor claims resulting in large claim payments. For example, I recently reviewed one in which a client’s chauffeur backed his vehicle out of a parking space and bumped another vehicle while traveling at a very low speed. The chauffeur followed company procedures and called the police to the scene, even though the other driver stated that it was minor and there was no need to call police. The police report indicated no injuries, no damage to my client’s limousine, and very minor damage to the other vehicle. My client’s insurance company paid less than $700 for damages due to a scratched bumper—and then the other party contacted a lawyer and sued my client for $150,000, claiming back and neck injuries. It currently appears that the insurance company is going to settle the claim for $50,000, plus legal fees. This happens every day, and its effect on the industry is becoming apparent.
What Markets Are Most Affected?
It is an unfortunate reality that transportation companies in some areas will face more challenges than others. In the New York City metro area, which seems to be reeling from the hard market’s effect, very few companies offer insurance coverage for operators with fewer than 10 vehicles. Since the area is highly populated—and traffic density usually leads to a higher frequency of claims—transportation companies in this region will see premium increases upon renewal. In addition, governing bodies and New York State have no-fault laws; specific Personal Injury Protection limits are required by the NYC Taxi & Limousine Commission. These laws require companies doing business in NYC to offer higher coverages if operators want to be properly licensed, which drive up premiums and result in cautious underwriting approaches.
As more and more companies are adding buses to their fleets in order to meet customer demand, we’ve noticed that some clients have had difficulty insuring party buses with perimeter seating. If you are contemplating the purchase of one, check with your broker and get a quote in writing from your insurance carrier first. Be aware that buses with forward-faced seats do not seem to be affected.
How You Can Prepare
I recently asked Matthew Mushorn, VP of Lancer Insurance Company, for his take on what the most important issues are for an underwriter before releasing a quote to a broker on a limousine or bus operator: “When considering pricing, we’ll certainly review loss history and driving records. Demonstrating that management has a culture of safety is essential. Establishing there are procedures in place with regard to chauffeur hiring, training, and record-keeping is important. We’ll also look to see if companies have driver incentive programs and/or utilize any fleet management technology like event recorders, driver scoring, GPS, etc.”
As Mushorn indicates, management’s overall commitment to safety is what results in the best available premiums on your insurance program.
While the hard market may be tough, it’s not a perfect storm that can’t be handled by professional operators. There is still hope—and opportunities for smooth sailing, too. So how do you navigate it to not only to obtain the lowest possible rates but also to maintain the best ones that the market has available?
1. SELECT THE RIGHT BROKER:
Only rely on brokers with experience in this industry. Experienced limousine insurance brokers will have access to companies that specialize in insuring your vehicles. They will know the coverages you need and how to get you the best rates.
2. REQUEST QUOTES FROM MULTIPLE COMPANIES:
Ask your broker which insurance companies he will be quoting, and make sure you see all quotes. I suggest that you ask your agent to compare costs from all companies, and provide a spreadsheet of the results.
3. EXAMINE YOUR LOSS RUNS:
Loss runs list all claims filed with your insurance company. Request loss runs every year and review them for accuracy. Your input may assist in reducing or closing an open claim. Insurance companies formulate their rates based on experience rating, which can result in discounts or increases in premiums, depending on the frequency or severity of claims activity.
4. REVIEW YOUR FLEET’S VALUE:
A portion of your premium comes from providing physical damage coverage—comprehensive and collision. Most insurers base their premium on the values you provided, so make sure that the appraisal of each vehicle accurately reflects current book value. Insurance companies will only pay the Actual Cash Value of a vehicle if it’s stolen or totaled, which means there is no point in over-insuring the vehicle.
5. LOOK AT YOUR POLICY DEDUCTIBLE:
You probably don’t put in a claim for every dent or scratch on your vehicle, opting to handle and fix some of the smaller ones yourself. So why pay for a low deductible? If you have good loss experience and rarely file claims on your vehicles, you may want to consider increasing your deductible to $2,500 or even $5,000. The savings may be substantial.
6. EMPLOY THE BEST:
Your chauffeurs say a lot about the type of operation you run. Insurance companies closely examine their motor vehicle records, and often determine pricing based on your driving staff’s overall history. Do you know how many speeding tickets your chauffeurs have or accidents they’ve been involved in? You should maintain a file on each driver and review their motor vehicle records twice a year, including individual annual assessments where you can revisit company policies with them.
7. HAVE LOSS CONTROL MEASURES IN PLACE:
You must have a good loss history to get the best insurance rates—and a good track record does not just happen. It requires a concerted effort to put together safety measures that ensure good performance of your company in the eyes of the insurance carrier. Consider the following: a formal driver training program, regularly scheduled driver safety meetings, an employee handbook and safety manual, and safety bulletins that are regularly distributed to drivers each month.
While the hard market may be tough, it’s not a perfect storm that can’t be handled by professional operators."
8. MAKE SURE YOU ARE DOT COMPLIANT:
If your vehicles seat nine or more passengers, you should have DOT authority. The Federal Motor Carrier Safety Administration (FMCSA) issues two numbers to commercial transportation companies: The first is the DOT number, a unique identification number for collecting safety data, compliance information, and accident investigations; the second is the FMCSA MC (motor carrier) number, also unique and often referred to as operating authority. Consider hiring a professional compliance company to ensure that you are DOT compliant. According to Joe Guinn of Limo & Bus Compliance, “Most people think intrastate commerce means crossing state lines but they are wrong. In May 2014, the FMCSA released an updated explanation to interstate commerce. The clarification explained that the airport is a port of entry for interstate commerce; mainly your passengers. That means that if you use a commercial motor vehicle (CMV) to pick up an out-of-state passenger, or accept bookings for a CMV from out-of-state affiliates, you are engaged in interstate commerce.”
Insurance carriers will check your DOT authority to see if you have any violations, failed vehicle inspections, or if your authority is in good standing.
9. USE TECHNOLOGY:
Review the online driver training programs that are now available, such as Safety Training Operators Program (STOP). Consider installing vehicle tracking systems and camera systems in your vehicles, which can help your company run more efficiently while reducing accidents and unsafe driving practices. The cost of these systems have been drastically reduced over the past few years, and utilizing them may save you thousands of dollars in just one year.
If you follow these recommendations, you will have demonstrated to insurance carriers that yours is a well-run, safety-conscious organization. This should provide you with the responsible seamanship to navigate the turbulent waters of this hard market. Happy sailing! [CD0216]
Mike Marroccoli, CIC, MBA, is a Regional Vice President with The Capacity Group. He can be reached at mmarroccoli@capcoverage.com. /><br />"