GUEST COLUMNIST Jim Millar, MBA, CFP Truck Insurance Group Vice President With the recent financial and credit crises, transportation companies can expect price increases for coverage in 2009. All insurers depend on underwriting profits and investment income to earn their profits. With the bond and stock market in turmoil, insurers will return to underwriting to maintain or increase profit margins. Simply translated to the transportation industry, this means price increases and/or limits of insurance decreases. How should you as a transportation company owner manage this aspect of your business under these conditions?
Very simply, return to the basics of the insurance process to ensure data accuracy and correct and appropriate coverages. Here is a checklist of underwriting procedures that as a company owner you can use to affect your coverages, premiums and risk management program:
- Review and refine your hiriing criteria
- Reemphasize your commitment to safety
- Review loss information
- Explanation on any large claims
- Prepare a company to presentation
Review and refine your hiring criteria. It is critical to your Risk Management program to hire the best and safest drivers on the road. Your drivers’ mistakes become claims and increase your company’s risk exposure. Be thorough in your hiring process and do a full back ground check for all your employees to mitigate unforeseen exposures down the road.
Reemphasize your commitment to safety. A safer company is a more insurable company. A good safety program lets the underwriters know that you have programs in place to influence behaviors and mitigate your company’s risk exposures. Attaching an overview of your safety program does not really do much good for underwriters - underwriters rarely read them. Take the time to tell them what makes your company different from the average transportation company.
Review loss information. Most insurers will request a five-year history plus the current year of loss and exposure experience as well as 2 years of financial information. This data is important to underwrite your risk and it is essential to make sure that the information is up to date and correct. Have your CFO or Controller available to explain any questions on your financial information. You should also have other business partners (bankers, consultants) available to discuss financial, operational and safety issues with the underwriter.
Explanation on large claims. Included in the information provided to the underwriter should be detailed explanations of large claims and the steps to reduce or contain this exposure. Underwriters like to know the frequency and severity of large losses. If you have changed insurers in the past, you might want to ask your broker to conduct and audit of any open claims with prior insurers.
Company presentation. Insurance provides coverages on predictable risks and the rare instance of the unforeseen risk. As a company owner, you have to sell the underwriter on why your company should be insured at better terms and conditions than your competitors. This means you need to differentiate your company from your competitors and indicate why your company is the safest bet. You should create a presentation on your company to share with primary liability, cargo, workers compensation and excess carriers.
In addition to the steps outlined above, a good risk management program collaborates with brokers and consultants that are committed to the transportation industry. The industry has a unique array of perils that differ from the mainstream market place.
A good broker should prepare a loss stratification and loss projection for the upcoming year for the underwriter. The projections is based on you company’s prior losses and exposure history along with your projected exposures. These projections will help you select the appropriate deductible based on your risk tolerance. Additionally, the projected exposures will help determine your premium and having accurate data will prevent any additional premiums owed or premium returned.
Another area that a broker can advise you is in claims handling. Your broker should work with you to develop claims handling specifications as to how you would like any claim managed. You should always evaluate the insurer or third party administrator based on their track record of handling transportation claims as well as their willingness to handle claims per your specifications.
Lastly, your broker must be knowledgeable on safety services. A broker can help you evaluate safety services and programs from the insurer or an outside consultant. Some questions to ask: How will the services offered augment your current program? Does this particular consultant have experience in your industry segment? Does the safety consultant assigned to you have transportation experience in your segment? Your broker should help you evaluate these services.
In order to insulate your company from the price increases in 2009 it is important to be prepared for the insurance buying process. Your insurance program should be more than coverages and premiums; your insurance program should help you protect your bottom line and make you a better company. There has been a recent trend to find the best price and change brokers and insurers from year to year. In a hard market, buying on price alone could threaten the viability of your business.
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Jim Milliar has 29 years of experience in the insurance and risk management profession. Prior to joining Cottingham & Butler in June of 2007, Jim headed the Transportation Industry Segment for bank owned top ten national brokers. Jim specializes in alternative risk financing programs which include but are not limited to large deductables, qualified self insurance, discount guarenteed costs and group and single parent captives.
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