Operators should demonstrate good habits in a soft insurance market
By Peter R. Cohen
Several years ago when the robust economy was riding high and investors were raking in money too fast to count, many investors lost sight of reality. All too many held the common belief that those healthy returns would continue indefinitely. Consequently, the abrupt reversal of the trend caught many investors totally unaware.
Because the reasons for their significant return on investment seemed viable, and encouraged people to invest further under the assumption that those returns would continue unabated regardless of economic conditions, their losses came as a shock. These individuals became complacent and completely lost sight of the familiar axiom: when something appears to good to be true, generally it is.
The same holds true for bus and motorcoach companies dealing with the current insurance climate. Coverage is more readily available in this softer market. Underwriters are more amenable to negotiation, premiums are either stable or falling, and new players seem to be entering the marketplace monthly.
Whereas in a hard market, coverage is more difficult to place, lower limits of liability are available, premiums are high and certain coverages might have sub limits — or be unavailable at any price.
A multitude of factors influence market conditions, among them economic downturns, catastrophic world events, industry capacity, industry claim reserves and supply and demand.
Risk management
Risk management encompasses myriad factors and components. With CSA 2010 now in place, regulatory compliance becomes even more relevant and requires much more attention to all federal regulations — an important component in risk evaluation, along with vehicle maintenance, hiring procedures, training protocols and claim prevention.
In evaluating a motorcoach account for insurance purposes regardless of market conditions, the common denominators are always claims activity, geographical location, driver quality as well as the nature and scope of the company operations.
As these soft and hard cycles occur the most important point to remember is they never last. It is essential to continue practicing good risk management habits regardless of the current cycle.
Michelle Silvestro, assistant vice president and national marketing manager, National Interstate Insurance Company, Cleveland, OH, suggests taking a buyer beware approach during a soft cycle.
“While there is plenty of capacity with several companies offering low premiums, operators must be certain the company they insure with is in stable financial condition and has made a long term commitment to the industry,” she says. “The ability to adjudicate and settle claims in an efficient and effective manner is paramount. Good claims handling ensures the account will be fairly judged.”
Silvestro says this, in fact, becomes the legacy of all motorcoach operators as an insurance carrier evaluates and considers their business.
There are numerous options to offset both soft and hard cycles in a roller coaster-like market. It becomes incumbent the broker think beyond traditional means to bring these options to the attention of the operator. Creativity and innovative thinking are the driving forces here.
“The liability deductible is the single best tool in managing cycle risk,” says Tim Delaney, executive vice president, Lancer Insurance Company, Long Beach, NY. “It allows an insured operator to assume risk based solely on what he knows about his own business — and the confidence he has in his ability to manage it.”
He says the operator can raise the deductible annually as premiums rise, or reduce it when prices stabilize or fall.
“He can soften the blow substantially by keeping the insurer out of day to day claims,” says Delaney. “With all of the variables that affect the long term viability of a motorcoach operation — driver shortages, training and operational issues, compliance related items— nothing can cause the failure of a good and well run company faster than the violent price swings that occur regularly with insurance expense, especially if complacency has become the rule rather than the exception.”
Informed broker
Choosing an informed insurance broker, one familiar with the nuances of the motor coach industry, is essential. Much like a corporate attorney and accountant, the insurance broker must meld into the management team and serve as a resource to both assist and advise. A competent broker is proactive and knows how to navigate the insurance landscape. He does not allow the client to compromise the commitment to run the safest operation possible regardless of the market cycle and economic climate.
The tendency to lower standards during a soft cycle because insurance costs become less significant is not a formula that assures long-term viability. An informed and involved insurance broker will never let the client lose sight of this all important maxim.
A new entrant into the insurance arena may have little idea about the risk that he assumes when he provides a $5 million limit on each and every piece of equipment he insures.
Not until policy limit claims occur do the eyes open and those new entrants realizes just what kind of exposure they have assumed. It can take a few years for these significant claims to mature, and when they do it is frequently too late.
The highway is littered with the carcasses of many insurance carriers who ventured into these shark infested waters only to realize too late what liability exposures they had become responsible for and the accompanying financial devastation.
The highway is equally littered with those operators who gave up the stability of a long term insurance relationship with their carrier just to save a few dollars in the short term. Many of those operators find themselves having to pick up the pieces as a result of that decision. Or even worse, having to deal with a state guarantee fund to step up and provide the protection that they had paid for because their carrier is no longer financially viable.
States create a guarantee fund to fulfill the financial obligations of insurers declared insolvent or who have incurred some sort of financial calamity.
The survivors are those who operate ahead of the curve and demonstrate the vision and foresight to practice good risk management regardless of insurance marketplace conditions.
Simply put, practicing good habits should occur every day, not just when insurance costs begin to escalate.
Peter R. Cohen serves as vice president and director of marketing for Capacity Coverage Company, Mahwah, NJ, one of the largest providers of insurance to the bus and motorcoach industry. Contact Cohen at pcohen@capcoverage.com.