Insurance Buying Tips for a Changing Market
by Tom Dickmeyer, CEO

Tom Dickmeyer, Cline Wood CEO, recently participated in a presentation by the American Trucking Association’s Insurance and Risk Management Committee at the ATA’s National Accounting and Finance Council annual meeting. Tom’s topic was “Insurance Buying Tips for a Changing Market — Understanding and Manipulating Insurance Pricing and Payment Variables.” Following is a summary of the presentation.

The insurance marketplace suffered extremely poor results in 2008 as a result of reduced premium rates, a depressed economy and paltry investment income results. For the year, the industry incurred $1.05 in losses and expenses for every $1 of premium. Investment gains fell 59 percent from the prior year.

All this leads us to believe that premium rates will be rising in the future; however, the industry currently remains strongly capitalized with abundant capacity. Our best guess is that the trucking industry will continue to enjoy low premium rates for the remainder of 2009 and perhaps well into 2010. Unless there are natural or man-made disasters that have catastrophic impact on the industry, Cline Wood expects any increase in premium rates to be gradual.

While rates are still low and in anticipation of a change down the road, there are some steps that all trucking companies can and should be taking to minimize the cost of insurance. Click on each of the tips below to get additional information.

Tip #1: Know where your losses are coming from and what you are doing about them

Know the causes of your losses and contributing factors. Look for common denominators, such as:

• Type of loss (backing, sideswipe, rear-end, roll-over).
• Geography (hills, curves, city, country).
• Time of day.
• People involved:
  • Driver (fatigue, inattention, inexperience, newly hired).
  • Dispatcher (Is one dispatcher a common link to several drivers that are having accidents?)
  • Shipper/receiver (Is the shipper or receiver located in a bad spot? Is there a problem at the pick-up/delivery site?).
• Loss layers: Where do the majority of your claims and dollars occur within loss layers? ($0-$5,000? $5,000-$10,000?) Know the historic average loss costs and the projected loss costs in each layer.

Safety efforts

• Focus safety and prevention efforts on the major causes of frequency and severity.
• Implement practical solutions in addition to training and awareness efforts. For example, if you have a lot of side impact claims, put on fender mirrors or establish a mirror station at your terminals. If you have drivers falling while exiting the trucks, get them out of cowboy boots and into safe footwear.

Track and compile evidence of results. By knowing your losses you can establish the baseline and track the improvement.

Tip #2: Have an insurance marketing plan. Your approach to the insurance companies will have a major impact on the insurance program you get.

Setting your goals: What do you want to achieve?

• Premium rates.
• Terms and conditions.
  • Minimum premiums.
  • Audit bases.
  • Multi-year term.
• Relationship with an insurance company or group of companies.
• Do you want to continue an existing relationship? (Things are going well)
• Does it make sense to terminate an existing relationship? (Problems have soured the relationship.)
• Does it make sense to embrace a new relationship? (A new carrier has distinct advantages.)

Designing your program: Can you/should you retain some risk?

• For every dollar of expected loss that you retain (i.e. in a deductible program) you can save up to 30 cents or more in premium.
• Use the loss-layer information to determine what the out of pocket losses have been in each layer.
• Your marketing plan should include a request for pricing at each of the retention options you will consider.
• Use the safety and prevention information to determine whether your future losses will be better than your historic losses.
• Compare the insurance company premium credits for the chosen retention to the amount of loss you believe you will incur.

Timing your approach to the markets.

• Earlier is almost always better than later.
• Avoid December and January if at all possible. (reinsurance treaties, holidays, etc.)
• Do not restrict yourself to staying on the actual expiration date.
  • If your renewal rate is better you may want it in effect earlier than your expiration.
  • If you are having a great year and you have a great early quote, don’t wait for “Murphy’s Law” to catch up to you. Bind now and lock the good rate up for a year. Then if there’s a large loss you have a time to overcome it before your rate is subject to change again.

Approaching the markets.

• Your information should be presented in person, either at your office or the underwriter’s office.
• You or the appropriate person within your company should be an active member of the presentation team. No one tells your positive story more compellingly than you do.
• Plan who will say what in advance. Saying too much or the wrong thing can do damage.

Tip #3: Understand your minimum premiums and policy audit provisions and take steps to minimize any negative impact on your costs.

Know your policy minimum premiums

• Three minimums to look for:
  • Minimum earned.
  • Minimum monthly.
  • Minimum annual.
• If you are behind on your minimums address it as soon as you know. Don’t wait for renewal.
• You have options when the minimum premium represents a penalty, i.e. your actual calculated premium is less than the minimum.
  • You can try to re-negotiate your minimum for the remainder of the existing policy.
  • You can try to cancel and re-write your existing policy.
  • You can explore the benefits and penalties of cancelling your current policy and changing insurance companies.

Understand the meaning of “estimated premium” and the audit provisions in your policy.

• Is the policy auditable?
• If so, is it auditable down as well as up?
• Is it flat? (No audit up or down. Many umbrella/excess liability policies are flat.)
• If you are not auditable down or you are flat and you are running behind your estimated miles or revenue, you need to examine the options to avoid paying a penalty.

Return to Cline Wood Agency Transportation and Agribusiness Review, Summer 2009