The Lowdown on Limousine Insurance

Posted on April 1, 2005 by LCT Staff - Also by this author

The word on the street is that limousine insurance rates are supposed to be on the decline, but most operators have seen no evidence of this yet. Instead, operators are hunkering down, doing everything they can to keep rates lower, and even attempting to start their own association-based insurance companies.

The following articles offer insightful tips from industry experts on how to maintain better loss runs and save money on insurance.

Why Insurance Is Still So Expensive and How to Lower It
By John Arone, account executive for TIPS Insurance Agency in Upper Darby, Pa.

The limousine industry has been waiting for rates to drop, and we are beginning to see the first signs of that now. Of course it can’t happen quickly enough for most people, but it is finally moving in that direction, and I feel confident that most people will see a stabilization, and in many cases reductions, in the coming year.

You’re probably saying, "I heard that last year," but this kind of thing can be slow to happen. And the fact is the livery industry was actually one of the last industries to enter what we call a 'hard market,' meaning that rates are high. This may be why it seems like one of the last to come out of it.

Prior to 9/11, we watched the livery insurance industry change before our eyes as re-insurance companies dramatically increased their rates due to a downturn in the economy. And rates continued to rise for several years.

While waiting for rates to drop, operators can take action to speed up the process and stabilize their companies so they don’t get slammed as badly when, inevitably, another hard market arrives in years to come. Unfortunately, these things are cyclical and inevitable.

The following are some of the best ways to lower rates:

1. Install in-vehicle video camera systems. DriveCam is the best known, but there are others. This helps tremendously in loss prevention.

2. Implement drug- and alcohol-testing programs at your place of business. Accidents are much more likely and much more costly if alcohol or drugs are involved. When accidents cost insurance companies more, you pay more for your premiums.

3. Implement a driver-training program that includes safety procedures. A number of effective programs cover not only proper etiquette and customer service, but also defensive driving, night driving and seasonal driving. These solutions are expensive and will not dramatically reduce rates overnight, but they are long-term solutions that work.

To Lower Your Rate…Subrogate
By Michael Dozier, president of Signature Limousine in Nashville

For those not familiar with the term, subrogation typically occurs when an insurance company that has paid out a claim to its insured client for injuries and losses then sues the party who the injured contends actually caused the damages.

For example, say Johnny the Limo Driver gets rear-ended at a stoplight by Joe Schmo. Good Hands Insurance Company has insured the vehicle, so Johnny gets a check to pay for his vehicle. Then Good Hands sues Joe for that amount.

Instead of subrogating, insurance companies can sometimes simply decide to make up the money they lost out of your pocket. So subrogation, and your participation in the process as the insured, can significantly impact your bottom line. If the insurer recovers losses, you will enjoy a reduction of your losses, and this will help reduce your premium.

Oftentimes, things are not as cut-and-dried as the example above. After an accident, a determination must be made whether or not to subrogate. This decision is at the sole discretion of the insurance company. If they are convinced they have no chance to win the case, they will not sue --even if you were in the right.

You may need to plead your case to help push the process forward. In either case, your active participation is not only advisable, but most likely will be required under your policy.

The best way to ensure that the subrogation process is successful is by educating and training employees and managing the information on the claims you have.

Training your chauffeurs and managers to know what to do and how to react in the event of an accident is essential. This entails collecting as much information as possible at the time of an accident. Keeping records and properly communicating that information can be crucial to determining liabilities and, eventually, fault.

Take the time to run through scenarios and give examples in your training program. Do not assume employees will know what to do. Additionally, give them the tools to accurately record the required information.

Accident kits, if not provided by your insurer, can be assembled and placed in the glove compartment of every vehicle. These should include questionnaires to aid in the collection of pertinent details, information cards for writing down contact and insurance information of the other party, disposable cameras to accurately record physical information and a simple to-do list.

Any information that can assist your insurance company in overcoming the burden of proof only increases the chances of recovery of losses, which decreases your actual losses. So be sure to subrogate whenever it’s possible and makes sense.

LANJ Develops a Captive Insurance Program
By Barry Lefkowitz, executive director of the Limousine Associations of New Jersey (LANJ)

After most members of the LANJ suffered 50% to 100% insurance rate increases for three years in a row, we identified the need to gain control over the quality of our coverage and the rates we pay.

We found a broker who had a background in captive insurance, a man named Jim Tunney, who was interested in developing a program for us. And we met with the State Department of Banking and Insurance to ascertain requirements for a captive insurance company in New Jersey.

In the meantime, our broker performed an audit of our members’ loss runs for the preceding three years. It was established that, statewide, losses were less than 16% of premiums. This was based on findings from 2,000 cars.

All of this brought up the question, "Why are we getting slammed with 50% to 100% increases year after year?" and propelled us to move forward.

However, starting a captive insurance company is no easy task. We attempted to raise the $3 million required by the state to fund the reserve for an insurance company insuring between 1,000 and 2,000 vehicles from our members. This proved to be impossible for operators emerging from the economic downturn our country had faced. With the help of our broker, we sought out a number of sources for the money, including insurers, re-insurers, brokers and investors.

Our broker finally succeeded in finding a group of investors familiar with the captive insurance market. They reviewed our loss histories and recognized the profitability of the venture.

As of February, a captive insurance corporation was being formed. Three members of the LANJ will sit on its board of directors. Our program was set to be introduced to the members of the LANJ mid-March.

To be eligible for the program, operators must be in business for a minimum of three years, they must be members of the LANJ, and their losses must be approximately $1,200 per vehicle or less per year for the preceding three years. The insurer will also have a named driver policy, which gives the insurance company the right to reject a driver as a result of a bad Motor Vehicle Report. We are still trying to decide whether people will be required to install an in-vehicle DriveCam video system in each vehicle.

The benefits of the program are many, which include reasonable rates that can be paid in 12 equal payments and annual rebates that will be based on the individual company’s loss history and the insurer’s profitability. A small stipend will also be paid to the LANJ for each car insured to help pay for legislative issues, etc.

We are rolling out the program June 1, and if we can make it fly, it will serve as an excellent model for associations across the country.

Understanding Insurance Companies
By Ken Marks, president of Marks Insurance Group in Deptford, N.J.

As many operators may have noticed, rates can vary dramatically from one company to another -- even between ones that seem almost identical. The reason for this is that every limousine operator is individually underwritten and insurance companies look at the following factors: drivers, vehicles, loss runs, new ventures and premium-payment history.

What is an acceptable driver?
Each insurance company develops its own “driver matrix,” which tells them whether a driver is acceptable and insurable. While it can vary from one insurance company to the next, there are a couple things they all have in common: They may not want to insure you if you have received more than six points in five years, or have been involved in numerous accidents, even if you were not at fault.

This is where many limousine operators fail to understand why their rates are coming back higher than those of their local competitors. I am often amazed at how many times I have received a request to add a driver, only to find out that the driver has had numerous points, accidents, even convictions for driving under the influence.

Every driver who works at your company contributes to the cost of your insurance premium. We understand that drivers with a commercial driver’s license (CDL) are not always easy to find, but too often, questionable drivers are asked to be added to a policy.

This is a red flag for an insurance company. If you are willing to put these people behind the wheel, the insurance company grows concerned about the likelihood of future problems.

Putting an unknown driver into your car is like handing your operating checkbook over to a complete stranger with no supervision. These people can make or break your future.

No owner should ever hire a new driver without personally reviewing the driver’s five-year abstract, which should be a mandatory component to a new-hire review.

What year and style of limousines are acceptable?
This varies by insurance company, although it’s probably safe to say that sedans and vans should not be more than six years old, and limousines should be retired before 10 years. None of the insurance companies I know of have developed timelines for SUVs, exotics or antique limousines.

For smaller companies, which make up the majority of our industry, insurance companies like to see two limousines for every sedan. Larger operators have their own set of rules, as most run sedan-heavy fleets.

Maintenance logs should be kept on every vehicle. Insurance companies will, from time to time, review these logs. Time, date and mileage should be noted for everything that was ever done to a vehicle, including checking the tire pressure and adding a quart of oil. Why? Insurance companies like to see that you conduct a regular maintenance program. It shows that owners care enough to keep their vehicles in tip-top shape.

Pay your premium on time
A common mistake among limousine companies is waiting until termination to pay their premium, noting that their insurance company gives them the extra time.

Insurance companies understand that during the course of the year money may get tight, but termination notices cost insurance companies. The costs are variable, but most include the man hours spent processing the terminations, and the cost of paper and postage for sending out the notice. Once payment is received, someone must go in and reinstate policy, which requires more man-hours.

Maybe it doesn’t seem like a lot, but it adds up. And insurance companies have been known to raise renewal quotes and in some cases not offer a renewal based on the frequency of late payments.

Keep things in perspective
Limousine operators complain about the cost of insurance, and so do insurance companies. They are paying out record amounts in lawsuits. And with the higher limits of liability that limos must carry these days, insurance companies are growing concerned about the risk of writing livery insurance.

The fact is insurance companies are not required to write livery insurance. They generally raise rates in response to the peaks and valleys of the economy and the changing world around us.

We are all to blame for the cost of insurance. Insurance fraud is rampant; individuals sue over anything from coffee spills to dog bites. When these things happen, insurance companies pay, and that reflects on our rates.

Once upon a time, when a neighbor’s dog bit one of our children, the first person we called was the neighbor. Now we call a lawyer.

Until people realize that getting hurt is not the same as winning the lottery, insurance rates will be higher than they should be. However, if limo companies perform due diligence on their drivers and take care of their vehicles, they can better control their rates.

10 Tips for Getting the Most From Your Insurance
By Lee Martinez, agent for Transpo Insurance in Las Vegas

1. Use an agent who specifically works within the limousine industry. Find the right agent, interview that agent, and then you can turn over your confidential information for a proposal.

2. Make your agent earn his commission all year round. A good agent will review driver information every six months and sit down with a client to review the client’s losses on a monthly basis. The agent should also offer you stategies to protect your business and lower your expenses.

3. Set higher deductibles to control the cost of the physical damage portion of your premium. You should file all claims to avoid liability, but set the deductible at $5,000 so that your insurance company isn’t constantly paying out and your rate doesn’t skyrocket.

4. Train, re-train and look to upgrade your staff. This motivates your current staff to improve. Don’t put yourself in a situation where you have to compromise safety due to lack of employees or poor training.

5. Include a business narrative with your submission to an insurance carrier so that the underwriter understands why you have made certain decisions about running your business, such as why you have purchased certain vehicles and why you chose your coachbuilder.

6. Review your agent’s application. Make sure your financials, your applications and your confidential information are correct and presented in a favorable light.

7. Make sure you approach the appropriate insurance carrier for your company. Some prefer operators who provide mostly airport service, others like those who do reservations only. Make sure you fit their requirements before you waste your time.

8. Get open claims closed. If they grow because the insurance company was not attentive, so will your rates. Get involved.

9. Establish a mentor program for new hires to develop good habits. Owners and senior employees rarely have accidents. If you save 10% on insurance from these activities, use part of it to reward the people responsible with raises or bonuses.

10. Know your employees’ schedules outside of your operation to avoid overworking them. Most Department of Transportation requirements say an employee can do a 10-hour shift and eight hours of driving in a 24-hour period.

What are loss runs and why are they so important?

Loss runs detail your loss experience with an insurance company -- meaning accidents, etc. They cover the period of time you were insured with an insurance company, as well as the premium you paid for that period.

If your premiums were $20,000 for a one-year span and the insurance company paid out $40,000 in that time, it would give you a 200% loss ratio. It doesn’t matter if it was for a loss of a vehicle, liability to others or legal expenses. No insurance company could survive for long if they didn’t try to make back some of that money.

Loss runs are essentially a limo company’s resume. You could have a letter from the President of the United States saying how wonderful your service is, but if you have high loss runs, obtaining insurance becomes very difficult and sometimes impossible.

Insurance companies review loss runs over a three- to five-year period. Most companies adjust rates based on prior years’ loss runs.

As a limousine company owner, you have a right to request loss runs. Owners should review their loss runs at least once a year. They are obtained by contacting your agent. If you have moved to a new agency, that agent does not have authority to request those loss runs. The agent who controlled the account can only do that. Be careful not to get any bright ideas about tampering with one of these forms. This could be considered insurance fraud.

If you are submitting your loss runs to an insurance company, you should include notes about any incidents that occurred. The notes can be written on the bottom of the loss run in the owner’s handwriting, and signed. Any accident listed on a loss run should also be submitted with a police report.

No one questions the fact that losses do occur. It’s the main reason why you buy insurance. But insurance companies generally like to see loss runs no greater than 30% over a three- to five-year period.

The best ways to prevent losses are driver screening, driver training, onboard video recorders and a good maintenance program for your vehicles.

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