By Terry C. Pfeifer

Occurrence frequency by 100,000 transit trips by transit operation type.

The Aon Risk Solutions 2011 Public Transit Liability Benchmark Analysis provides public transit risk managers with a better understanding of the liability cost of risk. The study found significant differences in both the frequency and severity of liability claims for bus operations compared to those of rail operations.
Over the last five accident years public transit liability costs have been increasing slightly. Since 2006 there was a 3 percent average annual loss rate increase, a 1 percent average annual claim frequency increase and a 2 percent average annual claim severity increase.

Findings expressed numerically
The Aon study shows that while the average dollar severity of a rail liability occurrence is higher than a bus occurrence, the much higher frequency of liability occurrences associated with bus operations is a key driver of the overall cost of liability claims.

Projected 2011 frequency was one occurrence per 1.075 million rail transit trips, and one occurrence per 170,000 bus transit trips

Occurrence severity limited to $5 million per occurrence by transit operation type.

Projected 2011 severity was $31,300 for rail operations and $21,000 for bus operations
Projected 2011 loss rate was 2.9 cents per rail transit trip and 12.3 cents per bus transit trip

A closer examination of the nature of bus operations compared to rail operations further explains these findings. As buses interact with pedestrians and other road traffic there is a greater potential for incidents leading to liability claims. While these claims can sometimes be severe or expensive, many others only relate to minor fender-bender incidents, which drive down the overall average bus liability claim severity. On the other hand, rail operations tend to operate on dedicated tracks with little or no interaction with pedestrians and vehicular traffic. While there are sometimes very severe rail occurrences, these are relatively rare, but they do drive up the average claim cost of rail occurrences.

Additionally, a small number of severe transit claims can result in a very large dollar amount of liability losses. As shown in this study an analysis of the distribution of public transit liability claims by dollar value revealed that 95 percent of public transit liability claims have dollar values of $50,000 or less, while a very small number of liability claims have dollar values of $1 million or larger. If these severe claims can be avoided or mitigated in the future, there is the potential for significant savings in public transit liability claims.

Loss Rate per 1,000 transit trips limited to $5 million per occurrence by transit operation type.

Public transit liability trends upward
Several factors are driving the increases in public transit liability. Outside pressures, such as medical cost inflation, have significantly contributed to the increase in the severity of public transit liability claims. Also many insurance experts have theorized that the current economic environment leads to an increase in the frequency of liability claims of all types. Some public transit risk managers also speculate that transit liability claims increase as less-experienced operators begin to replace older, more experienced transit vehicle drivers as they retire.

Public transit vehicle fleets and infrastructures are beginning to show signs of aging. While some transit systems more than 100 years old  have long dealt with maintaining an aging system, many other transit systems as young as 40 are beginning to deal with the challenges of sustaining an their original infrastructure.

Even when transit agencies perform diligent maintenance breakdowns in aging equipment can still lead to an increase in liability generating occurrences. Aging public transit infrastructure and an older workforce underscore the need for effective loss control, training and system and vehicle maintenance or replacement. These measures can help mitigate future increases and perhaps even lead to reductions in liability claim frequency and severity.

The future of ridership
Effective loss control will become even more important in the future as public transit ridership is likely to continue to increase nationwide. History shows that public transit ridership has consistently increased, not only because of population growth but also because of its advantages during times of economic growth. A strong economy leads to an increase in commuting workers as well as an increase in the number of riders who use public transit for leisure activity travels. Although public transit ridership growth has been somewhat flat in recent years, the transit industry can expect significant increases in ridership as the economy recovers. BR

Terry C. Pfeifer serves as a senior consultant for Aon Risk Solutions, Chicago, IL.

Rarely does an accident occur at a convenient time or place. How many times has a coach operator answered a call at the worst possible time of the day or night from a driver reporting an accident?

Understandably no one can predict when or where something will go wrong; it is precisely why the entire organization must be prepared 24/7 for when an accident can occur at any time. The team must know to immediately report an accident of any degree and respond with decisive action based on training.

The process must include the operator contacting the insurer immediately. Liability can hinge on the account of the facts from only one witness or passenger. The investigative team must receive all relevant facts to the accident.  Preserving as much information possible in the early moments is critical, such as the driver’s version of what happened, as well as the names and phone numbers of witnesses and key individuals.

Lancer Insurance recommends its accident kit for accurately reporting a claim. Placed in a convenient easy to reach place in the vehicle it includes courtesy cards to obtain names, addresses and contact information of all passengers, other drivers and company personnel and witnesses at the scene. Lancer suggests taking photos and even provides an AccidentCam in the kit — with the reminder to only photograph the vehicles involved and the accident scene, and to never photograph an injured individual.

Case study one

In May 2008 mechanical problems disabled a coach returning from Las Vegas. The driver pulled onto the shoulder six feet off the three-lane highway to investigate. On this hot night the driver instructed his passengers to remain on the bus and then deboarded to set out flares and warning triangles on this unlit portion of the highway. Several passengers became overheated and exited the coach before the driver returned.

As traffic approached the disabled vehicle one intoxicated driver failed to notice the slowing traffic in time and lost control of his automobile. He slid off the roadway and struck one of the coach passengers standing off the highway 100 feet from the coach.

Neither the driver nor the company reported this accident to Lancer. Because there was no impact to the coach they did not think their company was involved in any way. The driver did not take photographs to show the coach was clearly off the roadway.

When the claims examiner received the report two years later, he was unable to obtain a complete passenger list and therefore unable to follow up with witnesses. By that time the driver was no longer with the company and thereby uncooperative with the examiner.

The passenger struck by the out of control vehicle sustained injuries and ultimately filed a lawsuit against the drunk driver and the coach company. The jury determined both parties were at fault. The panel faulted the coach company for poor maintenance and the driver for not controlling the accident scene and for not asking passengers to stay off the roadway. Because he was uncooperative with a weak memory, he proved to be a very bad witness.

This claim might have turned out much differently had the driver and company notified Lancer immediately and taken the time from the start to fully document the scene, obtain witnesses and report the claim. Instead it resulted in an adverse verdict.

Case study two

A motorcoach pulled up behind two automobiles to wait to pick up high school students after a football game. As the driver eased forward with her foot still on the brake, a fight broke among a group of students near the front of the coach.

Distracted by the commotion, she allowed the coach to roll into the car ahead, pushing it into an SUV parked in front that vehicle. The vehicle sustained minimal damage front and rear and the driver was uninjured. The SUV went unscathed though the driver and adult passenger exited complaining of neck injuries.

The coach driver confirmed no one needed immediate medical treatment and used the Lancer AccidentCam for close-ups of the positions and damage to the vehicles involved. She spoke to the involved parties and obtained their contact information; completed a passenger list of the students on her coach, and immediately called Lancer.

The claims examiner noted that despite the fact the SUV driver and passenger claimed injury, they refused medical treatment at the accident scene. The photographs documented the very low impact accident with minimal damage to the car and none to the SUV.

He contacted the passengers on the bus who confirmed the impact was insignificant, suggesting only the slightest chance of injury.

As the claim process progressed, Lancer order surveillance on the SUV driver and passenger when they continued to seek frequent medical treatment. That action revealed the claimants were active and exhibited no outward signs of injury. The passenger worked at the doctor’s office where they were seeking treatment.

Following the report from the Lancer Special Investigations Unit and further questioning by the National Insurance Crime Bureau (NICB), the mother and son in the SUV ultimately withdrew their claims in the face of potential charges of insurance fraud.

While the liability was adverse for the driver, she handled her situation professionally, obtained all the necessary information and assisted with the investigation and defense of this claim, which greatly minimized its cost.

Lancer safety director Bob Crescenzo says the simple but most significant difference between these two incidents is one driver reported the claim, while one did not.

“The thought that there was no motor vehicle content or crash and therefore no incident or claim is simply incorrect,” says Crescenzo. “Every driver must be trained to recognize that anything that happens within the vicinity of the coach should be reported to the company and its insurance company.”

He says in the first scenario the two-year gap between the accident and the claim seriously compromised the opportunity to defend the policyholder, even when the driver had proceeded correctly.

The second scenario serves as an excellent example of what can happen when a driver maintains control of the situation and gathers the necessary information for a complete and accurate claims investigation.

“To keep the message simple: every driver must report every incident or crash,” says Crescenzo. “Gather as much information and evidence as possible. Even in the smallest events this practice is a hedge against their growing much larger at a later date.”

Jeffrey S. Willmann serves with Lancer Insurance as vice president, claims.

By Jack Gagliardi

In unyielding market conditions, bus and motorcoach operators are casting a wide net in an effort to strengthen performance and improve the bottom line. One area executives can make improvements is in commercial insurance programs.

Companies often take the if it isn’t broken, don’t fix it attitude with regard to insurance. However, as many insurers tighten their underwriting requirements and only offer insurance to higher-quality companies, an organization may want to review the way it prepares information for insurance program renewals.

A direct correlation exists between the quality of the risk information a company submits to its underwriters and the quality of insurance it receives. A well-executed submission can move a company to the top of the stack and gain favorable pricing, terms and conditions. An inadequate submission creates delays and is often set aside. The best way to start is to understand how underwriters view a renewal submission, and to know the specific information they request.

How to work with an insurance broker

1. Present a complete overview of the company. The overview should offer a general description of products and services, as well as a concise history of the business including length of time in operation, ownership succession and financial growth. Do not rely strictly on the consumer-oriented information on the Web site, as it is not specific enough for what an insurance company needs to see.
2. Describe the factors that distinguish this company from the competition. Include brief statements on the company safety culture, driver selection criteria and training, safety-related driver programs, equipment and technology that help to reduce loss, such as electronic warning systems. The company must think in terms of what would interest an insurance underwriter and not the customer.In separate sections provide bios on the principle officers, and a list of major customers.
3. Note all safety ratings. Provide the Safe Driver SEA score, Vehicle SEA score, current ISS score and Department of Transportation (DOT), Motor Carrier (MC), Federal Employee Identification Number (FEIN) and State Identifying numbers. If the current ISS score is above .49 and/or in between .49 or .75; or above .75, an explanation of corrective measures being undertaken to lower the score will be helpful.Keep in mind the lead time for underwriters is at minimum 60-90 days. Set a deadline or action date for the underwriter to provide the proposal, allowing ample time to go back for necessary pricing and coverage adjustments, or to consider other proposals from competitive insurance companies or brokers.

Critical information in a submission
Financial information for the companies’ two latest years should include audited annual financial statements or Annual Reports, and unaudited interim financial statements, 10K or 10Q reports.

Outline at least five years of historical information. Give a summary of losses with consistent and current valuation dates for each line of business (i.e., Bus Liability, Passenger Accident Liability, Physical Damage, Workers’ Compensation) and for each named entity. Include paid, reserved, loss and ALAE (Allocated Loss Adjustment Expense) amounts.

Also provide descriptions of losses (one paragraph on each loss in excess of $25,000) for each line of insurance under consideration. If the loss is open (not settled), can the company offer any information that will help underwriters evaluate the current reserves and/or the potential for settlement?

Explain why the company is self-handling any losses or lines of business, and include copies of any agreements with the current insurer, a description of the level of self-handling, and a copy of the claims manual stating reserving practices (particularly on Liability/Bodily Injury). Also provide the review of the internal loss reserves for any third-party actuarial.

For internal claims department and self-handled claims either on a QSI (qualified self-insured) basis or under a large deductible program, provide brief professional biographies of key claims handlers, and contact information in case the insurer wants to perform an audit of those claims operations. Advise the levels of self-handling currently allowed, and on what lines of coverage.

It is important to answer questions beforehand. Disclose current driver turnover ratio; list terminals (addresses, occupancies, square feet and fire protection), and equipment such as software and media. Also list bus liability attorneys and firms the company utilizes. Include the amount of collateral the current insurance company requires by line of coverage and if there is any collateral outstanding from prior insurance companies’ policy years.

Copies of existing policies (with pricing removed) may help to ensure that the underwriting company is duplicating all existing coverages, endorsements, terms and conditions. In addition, copies of the driver hiring and training manual, safety and loss control manual, hazardous material handling procedures, and names, phone numbers and addresses of a safety manager are helpful.

Additional information requested
Typically the broker submitting the underwriting information requests the following information from the company. Where there is no broker involvement, a direct-writer also is interested in information having to do with:

• Incumbent producer and carrier and length of service.
• Other competing brokers and insurers.
• Broker-client relationship, and the level of officer at the access point.
• Other collateral business that could influence the buying decision.
• A rationale to support existing and target pricing.

One final point: the practice of shopping around frequently, at least once a year, for insurance could prove detrimental to a submission.

Although this information is not all-inclusive, it does provide some suggestions for areas of potential improvement in the gathering and submitting of information to insurance companies through your chosen insurance broker.

In general, the better the quality of information, content and presentation, the greater the likelihood of a well-structured and competitively priced insurance program.

Jack Gagliardi serves as vice president, Transportation Practice, Marsh Insurance.