BUSRide Magazine - May 2004

Risk determines insurance rates — by Peter R. Cohen

Insurance executive outlines factors behind prices

As the motorcoach industry continues to adapt to insurance rate fluctuations, now is a good time to take stock of where we have been, where we are and where we might be going in the immediate future.

If one were to define a trend in coach insurance rates over the last 15 years, it would become obvious that while rates are currently at an all-time high, they have not deviated significantly from where they were in the early 1990s. That was before such factors as cash flow underwriting, short term commitments to the industry on the part of many insurance companies and significant jury awards became quite common. All this caused major insurance providers to take a step back and gain new perspective on the very real risk factors involved in the public livery arena.

As the long term impact of these and other factors become apparent, the number of insurance carriers willing to assume risk in the field has shrunk to a precious few. Those that remain have a very real understanding of the potential for dramatic and significant losses and charge premiums that are commensurate with their exposures.

To operators faced with paying these premiums, the effect on their bottom line is readily apparent.

While there are slight signs the insurance marketplace has stabilized and become somewhat more consistent and predictable over the last few months, there are many factors that will continue to have an impact on insurance expense as the situation continues to evolve.

Some of these factors are obvious and some are more subtle and require thought and vision.

As most operators are aware, virtually all insurance carriers will perform some type of loss control inspection, generally within 30 days of agreeing to assume the risk. During this inspection, there are many areas of operation and compliance that will be evaluated.

First and foremost, driver files will be checked to assure that all required documents are current, acceptable and up to date. Operators will be asked about their drug screening program. Does it comply with federally mandated requirements? There will be questions about driver qualifications and acceptability, maintenance procedures, hiring, training and logs will be looked at to assure compliance. Accident registers will be looked at to recognize loss trends and assure that all claims are being reported to the insurance company in a timely manner. The driver fatigue factor will be addressed relative to long, over the road exposures and how those situations are handled by the operator.

Over the last several years, one major insurance carrier for the industry has done extensive research which has shown that fatigue has played a major role in many serious bus accidents. If a procedure is not in place to address this contingency, it certainly will have an impact on the willingness of an insurance carrier to assume risk.

From an operational point of view, operators will be asked about equipment utilization. Specifically, how many miles does a typical piece of equipment travel each year? Are the routes regular such as line or transit operations or are they irregular? Does the equipment make frequent stops? Do the same people travel on the same buses each day? Does the risk operate 5 days a week or is it more of a 24/7 situation? Are there operational concentrations in any one major metropolitan area where there are known legal and court system issues that might be a factor in the willingness of an insurer to assume risk?

When a claim occurs, are procedures in place to assure that the insurance carrier is promptly made aware of all circumstances? Are drivers instructed as to their responsibility in the event of an incident? Are all units equipped with disposable cameras to memorialize the scene when an incident occurs?

As the industry has adapted to the reality of our insurance circumstances, we have seen a measurable increase in the commitment and attention that many operators have shown to the professional running of their businesses.

There has been the willingness of many to assume part of the risk on their own utilizing deductible or self insured retention options. Captive options, while not for everyone, have become an avenue that many have explored.

Many operators have reevaluated their operations and have cut back or completely eliminated portions of their operations that are either not profitable or have contributed to significant claims exposures that have adversely affected other aspects of their businesses. Many bus companies that have failed to be proactive in the ever evolving insurance climate are either in significant financial distress or have ceased to exist.

Operators who have resisted increasing their prices as their insurance and fuel costs have skyrocketed are the next group in peril. No one is insulated from reality and it is simply irresponsible not to pass these increases along to your customers.

In order to have the best chance of long term survival in this ever evolving and volatile environment, the watchwords that must become part of every business plan are compliance, adaptability, vision, creativity, communication and cooperation.

Peter R. Cohen is regional vice president of Capacity Coverage Company, Upper Saddle River, NJ. He can be contacted at 201-236-9800 or PCohen@Capcoverage.com.