Like much of Wall Street, the insurance industry has hit volatile times. Even before AIG, the world’s largest insurance company, entered an emergency federal loan to avoid bankruptcy, the insurance industry was planning on raising rates by the end of the year.
Lee Martinez, president of Transpo Insurance, public transportation specialists based in Las Vegas, says limousine operators can expect to see insurance rates increase by about 30% by January 2009. Since the insurance industry is government regulated, rate structuring has to be filed and approved before it can be implemented, but this process is moving forward, he says.
Martinez has been in the insurance business since the 1980s and has seen rate increases happen during other turbulent times, including the savings and loan debacle of the late 1980s, and more recently right before the Sept. 11, 2001 attacks, when the stock market downfall increased rates by 35%.
Insurance rates have been good for operators this year, with several insurance agencies offering reduced, competitive rates to build up their business, Martinez says. And although prices will rise, operators should do business with stable, established insurance companies to get through tough times.
“Instead of going to someone who will sell you an insurance policy of $1,200 per car, but you don’t know who the company is, you need to go to established providers,” he says.
Working with Established Insurers
BECAUSE OF ITS SIZE (compared to other industries) and the potential cost of collisions, the limousine industry has limited appeal to insurance underwriters, Martinez says.
“The limousine industry doesn’t pay a lot of premiums, but has huge liability coverage,” he says. Physical damage for a crashed sedan or limousine is clearly covered; the problem is liability coverage, which is decided mainly by the number of passengers injured in the collision, which can be quite large, he says.
Martinez advises operators to do business with established insurance providers, which is much more important now than getting a great deal. London American, Lancer Insurance, and Hartford Insurance are major providers to the insurance industry, and there are other insurers that operators also can consider.
“Go with name brand carriers that have been in business more than two years,” and build a strong working relationship with them, he says. “You need to stop dating and be married.”
Right after the AIG crisis received a great deal of media coverage in September, Martinez sent out an email to operator clients spelling out the significance of the AIG crisis, a company with more than $1 trillion in assets that pays more than $73 million per day in claims. “The ‘soft’ market is going to end as the investments for insurance companies are dwindling — premiums will need to offset this loss of income,” he wrote.
Stability should be the number one concern of operators, not price, he says. “Fine tuning your business practices during the coming lean times will be more imperative than ever,” he says. “Schedule a meeting with your agent to discuss coverage and ways to save money now. Trim the fat.”
Operators have appreciated spending less on auto insurance recently, but that cost will be increasing soon. The cost of insurance should be about 6% to 8% of a company’s gross revenue, but during the recent “soft” market, many operators have had a lower ratio due to decreased premiums, he says.
That percentage is rising, but operators must have auto insurance to stay in business. When he sent out the client email, Martinez received responses from nearly all of them worried about insurance rates, and for smaller operators, the ability to get coverage.
Be sure you make a careful, wise decision about your provider, he says. “There are still some great, solid, and stable insurance companies doing business in our industry.”