Insurance is an unavoidable cost of running vehicles, and no small expense. The price of insuring the movement of humans can be steep no matter what market you serve. But by understanding what underwriters look for when setting premiums, operators can gain a competitive advantage by shrinking their insurance costs while still carrying all required coverage for commercial transportation.
The challenge for insurance brokers in the limo industry is communicating all details to their clients, especially when rates rise. Lee Martinez, president of Transcap Insurance in Las Vegas, believes this is one of the most important parts of his job. “People should understand that just because you don’t have a lot of claims on your vehicles, the geographic location of your market can dictate a rise in premiums. If there have been a lot of claims in your area, or high-profile accidents that required large payouts, the underwriters will take this into account when deciding premium rates.”
It’s called an organic rate increase and it’s justified by the ratio of losses in the marketplace. “An organic rate increase has nothing to do with an individual company,” Martinez says. “It will have to do with the marketplace, the types of vehicles, and where they are going.”
Hard And Soft Market Cycles
Location-based claims and the number of available providers are two contributors to rising rates. When the number of insurance providers in an industry falls, premiums can go up. “This is known as a ‘hard’ market, where you see rates go up across the board,” Martinez says.
A ‘soft’ market, conversely, is when underwriters evaluate a lower risk for their clients, and are able to offer lower premiums. When this happens, more providers enter the industry, and operators can shop around to find lower rates. From 2001-2012, the limo industry benefited from a long ‘soft’ market. Now, it is in a ‘hard’ market with rising premiums.
What should an operator do? Get educated on what exactly underwriters look for when evaluating the risk of a company, and then modify operations to align with what they consider lower risk behavior.
For example, insurance underwriters look for certain safety training programs or behaviors in how limo companies manage their operations, and give credits or lowered rates if those systems can document lower risk, Martinez says. Having a written safety course for chauffeurs is one such criterion.
Martinez and Transcap Insurance put in the extra effort to help their clients take advantage of any credits they can get from providers. Martinez developed the STOP (Safety Training Operators Program) program, which is an online training module operators can sign up for and have their chauffeurs take on a computer. The training is documented and shown to the providers, which helps prove the company is doing all it can to lower risk, which minimizes premiums.
“A two-car operator in Paso Robles doesn’t have safety training and has nobody going there to talk to him about it, so STOP is for him, to help him save money,” says Martinez, in an example.
Explaining The Details
There are other ways to avoid risk that underwriters look for, such as the insurance of the mechanic who fixes the vehicles. By having the mechanic insured, whether through the policy of the company or mechanic, the risk can be further lowered in the view of the underwriter. Maintenance recordkeeping is another area examined. Operators should know that during vehicle inspections simple things such as recording the tire pressure number, instead of checking tire pressure “OK,” can affect risk evaluation.
“This is where your insurance agent comes in,” Martinez says. “They can show you how to maneuver through the requirements of the insurance carriers.”
When insurance rates increase, it can be frustrating, especially if the operator has done everything right with few incidents. By working with agents and keeping up with all paperwork and rules, operators can be sure they’re getting the best deal possible.
“Often, operators will relate the insurance costs of their commercial vehicles with their personal vehicles, and not understand why it’s so high,” Martinez says. “But if you compare the number of miles driven between the two cars, and remember that the commercial vehicle is transporting human cargo and can be driven by different [chauffeurs], the cost of insurance equates to being about the same, 6% to 8% of total gross revenue, typically. If an operator is paying more than that, they either have a problem with claims or need to find a better broker.”
Transcap Insurance; A Capacity Group Company
Location: Las Vegas, Nev.
Service: commercial fleet insurance
Owners: Lee and Tina Martinez; and Capacity Group