Q&A With Tim H. Delaney of Lancer Insurance

Insurance is one of the hottest topics being discussed in the industry today, especially as rates have seemed to skyrocket for many companies in recent years. We spoke with Tim H. Delaney at Lancer Insurance to help demystify what is going on in the insurance world, and, more importantly, how operators can best prepare for renewals.

Tim H. Delaney Chauffeur Driven: Insurance is THE topic of conversation lately. Can you explain what’s happening?
Tim H. Delaney: It’s been 13 years of rate increases, and, of course, no one likes it. Insurance is a product you buy that you hope you don’t have to use. We’ve heard from some operators that they think transportation insurance needs more competition, which isn’t an unnatural thing to say, but it’s important to understand that insurance is one of the most competitive marketplaces around. The macro picture is, commercial auto insurance has tightened significantly and is going to get more expensive for the foreseeable future with or without more competitors, and operators need to be planning for that. There’s a list of things driving up costs starting with all the billboards you see for attorneys, but also better-funded plaintiffs, the vehicles themselves, juries, courts, doctors, the list goes on. What makes it structurally different than an insurance cycle is this is not being driven by interest rates. Know that commercial auto insurers are struggling to keep up with claims costs.  It’s the same for motorcoach, trucking, all transportation.

CD: What about the so-called nuclear verdicts?
THD: There’s been this disconnect between the economic and relative values of some injuries, something called social inflation. People throw around numbers like $50 million for a broken leg. I’m not discounting that a broken leg is bad, but put a different way, do you think three generations of a family shouldn’t have to work because one person was injured in an accident? No, that’s ridiculous, but that’s how much money that is. Insurance takes risk off of transportation companies’ balance sheets and we spread the costs over a homogenous pool. As those costs go up for the pool, the amount of premium needed to pay claims goes up. However, there are two parts to the problem today. One, insurance companies are realizing that older claims are costing more than they thought. Second, the claims amounts are growing at an unprecedented 7-10 percent per year, which means insurers need to increase premiums by that amount each year just to stay still.

CD: What about tort reform?
THD: Tort reform is important, but as insurance is regulated by the states, that kind of fragments what you can get done. I’d probably focus on partnering with another industry like the bus or trucking world, who have aligned interests.

CD: Are there any states that are worse than others?
THD: There are places where we don’t even write business at all because of the legal environment. However, there is a wide spectrum of venues. New York and California are the largest, both with extreme challenges. 

CD: Has the Schoharie crash had any impact on insurance in our industry?
THD: If anything, the positive impact of that absolute tragedy is that it shined a light on how dangerous noncompliance can be. It’s shown the importance of keeping up on maintenance and everything else.

CD: So, what can operators do to keep insurance in check?
THD: Number one is hiring and managing quality drivers. There are always going to be accidents, but making sure your organization is built to be as defensible as possible is critical. Who do you hire? How do you train them, and is that training ongoing? How do you measure them? How do you compensate them? How do you incentivize that compensation? Do you monitor their speed and driving? The steps that your company goes through to be safe before the accident makes a big difference.

CD: What about technology?
THD: Cameras are very important because they give us the ability to fight fraud and often exonerate drivers. However, even when you’re at fault, it saves untold amounts of money in loss adjustment because we know what happened and can settle quicker. Having at least a dash camera is important because there is a ton of fraud out there, and being able to exonerate yourself is such a big deal. But remember: technology is a tool to help you manage something, it doesn’t manage anything for you.

CD: Technology in vehicles is supposed to make driving safer, but what about the cost of repairs?
THD: 20 years ago, a small fender bender was $300 but now it’s five grand, because you must replace all the sensors and update the software. And the guy fixing the car has to be trained extensively, so they are getting paid more.  But, if you look at the long history of auto claims, there hasn’t really been anything recently that has offset the cost of insurance by lowering frequency like we have had a couple times in history. There were a few big drops in accidents and deaths like when manufacturers changed the type of metal or added seat belts and antilock brakes, but even with all the fancy lights and sensors of today, it’s been consistent.

CD: What about distracted driving?
THD: You can go back to 2007, the year the iPhone came out, and there was a spike in claims all over the country that continues to be an issue. Now, the cars themselves are distracting, right? You get into a Tesla and there’s a movie screen in the middle of it, so distracted driving is an issue for sure.

CD: One thing that sets Lancer apart is that you like to be partners with your insured. Why is that so important in an industry like this?
THD: We have a team of about 15 people around the country who go physically inspect almost all the risks that we underwrite and offer some value-added services like compliance with DOT or state audits, for example. We run claim simulations, educate insureds with videos on how to train their drivers and managers, and more. For us, it goes back to transportation insurance being a product that everybody has to buy but nobody wants to use. Given the perch that we have in this industry, we get to see what works and what doesn’t, and how can we offer value for what they’re buying, even if they don’t have claims. This industry is very active with claims. It’s very capital intensive and people intensive. Most insurance companies don’t have, I would say, the fortitude or the interest in making the required investment to be successful. One of the big things that gets missed in a lot of casualty lines is how important claims handling is. If your driver rolls a minibus with 30 people in it and there are serious injuries, it’s a big deal. It’s going to be in the news, and there are all sorts of agencies that could get involved. How that is handled is the product you are buying. We’ve been doing this for 40 years, so we’re one of the true specialists.

We always try to avoid telling people how to run their operations, but we can give advice. We look at it through the lens that the accident has already happened and you are on the stand to defend yourself. Would you feel comfortable defending the actions you took, the policies and procedures you had in place, and your follow up? If you’re a good manager, all the things we’re talking about you probably do anyway, and that’s who we want to insure. We try to help educate. In the end, we’re insurance guys, so we just report the news of what goes on in the legal environment and reflect it back in rates, but we try to help be a partner in keeping those rates as low as possible.

CD: Can you offer advice to operators seeking renewals in today’s environment?
THD: Whoever you’re going to pick as an insurer, look at what their commitment is to the marketplace. We have the advantage of being very biased because we only do transportation insurance. Many companies have popped in and out of this business over time, so make sure you’re with an insurer that is financially strong and committed to transportation for the long term.

CD: Are there red flags that operators can avoid during renewals?
THD: We look at losses and drivers very closely. Obviously, compliance and SAFER scores for people that are in the bus world is a big deal. We’re looking at drivers, types of vehicles, mileage, and the work they’re doing. The underwriter is going to look at your website. Big or small, you want to put your operation in the best light for the insurance companies and show that you’re being a real manager and trying to prevent claims in the first place. We all deserve second chances, but if you have a driver who has a past DWI, that’s a risk we can’t afford to take. If he gets into an accident, even if it’s not his fault, that’s something the plaintiff’s attorney will use. It’s about defensibility, and that springs from a real culture of safety.   [CD1224]