Bus and Motor Coach Library

Professional Management Series #3 - Insurance   
How to Control Your Insurance Costs and Beat Market Cycles

author – Randy O’Neill, Lancer Insurance (2005)

The subject of bus insurance cost is indeed a volatile one.  With the federal government's requirement that interstate coach operators carry a $5 million liability limit for each occurrence, coupled with the fact that, relatively speaking, the affected bus industry universe in terms of number of companies is small, many insurance companies would rather deal with a less risky industry.

That being said, insurers like Lancer that long ago made a long-term commitment to meet the insurance needs of the motorcoach and bus industries fully understand what it takes to not only provide solid insurance programs to the commercial passenger transportation industry, but to do it at pricing levels that don't bust the budgets of their policyholders.

Sounds simple, but it's not.

Because, much like the bus industry, the insurance industry is an 'easy entry' business that too frequently leaves the door open to rate-cutting, market-share driven insurance companies that run their companies more like investment banks than professional insurers.

The result?  Competition triggered premium pricing swing cycles that makes bus company budget-setting a maddening exercise.

Quite simply, when the 'in again, out again' insurance companies realize their price cutting has left them unable to meet their claim payment responsibilities (remember the $5 million policy, limit?), their withdrawal from the market or total insolvency usually results in an often gut-wrenching pricing 'correction' for all those left standing. 

But it doesn't have to be that way.  In fact there are proven, simple steps motorcoach and bus company owners can take to flatten out the pricing cycles and bring more predictability to their liability insurance budget.  Here is the Top 10:

Choose Your Insurer Carefully
Similar to the bus industry, the insurance business is very closely regulated.  But that works to your advantage.  From state insurance departments to private insurance industry rating organizations like the A.M. Best Company, there is plenty of information available on each and every licensed company conducting insurance business in the U.S.  Take advantage of these information sources to check out any company you and/or your broker is considering for your company's commercial auto liability and physical damage insurance coverages.  Minimally, you should insist that the company you choose has an "Excellent" rating from the A.M. Best Company.

Deal Only With Bus Insurance Specialists
The insurance industry is composed of 'generalists' and 'specialists'.  When it comes to insuring your coaches and buses, you should only deal with insurance companies that specialize in insuring passenger transportation businesses like yours.  With $5 million limits involved, the need for extensive post-accident communications with your customers and your company's hard-earned professional reputation at stake, you can't afford to be working with an insurance company that does not have a very strong focus or understanding of your industry.  Further, you'll want to foster a long-term relationship with a bus insurance specialty company that won't automatically cancel your policy after a serious claim. Remember: If your company has built a 'bank' with that insurer, it understands the risk (i.e. potentially severe losses) it has assumed and is far less likely to take drastic measures in the wake of a serious claim.

Take Advantage of Deductibles
Closely review your loss runs for the past five years (10 if possible) and decide where to draw the line that separates historically predictable (in accident type & cost) claims from the truly unpredictable ones.  This exercise can save your company thousands of dollars each year off your annual premium because legitimate bus insurers are happy to lower premiums and give a considerable 'credit' to accounts that practice proactive risk assumption.  Translation:  Take a deductible.  Keeping part of the risk in-house gives your company dollar for dollar value where as trading dollars with your insurer by purchasing 'first dollar' coverage is just not good business.  In fact, more often that not, the 'credit' (i.e. lower annual premium due to a deductible) exceeds the money you pay on claims under your deductible.

Manage Driver Fatigue
Obviously, bus companies that have fewer claims pay less in premiums, and there's no worse source of serious claims than tired, overworked drivers.  Driver fatigue is finally being recognized as one of the bus industry's most serious problems. In fact of the almost $800 million in claim payments made by Lancer since 1985, almost $300 million (close to 40%) can be linked to driver fatigue-related crashes.  But, like most problems, serious or otherwise, there are some simple steps that can be taken to reduce, if not eliminate, the costly consequences of fatigued drivers.  Encouraging healthy lifestyles both at home and on the job, identifying larks (day drivers) and owls (night drivers) and making driving assignments accordingly, establishing realistic trip schedules, empowering drivers to make common sense en route decisions if fatigue becomes an issue and regularly testing drivers for fatigue-related conditions like sleep apnea are just a few of the many proactive steps you should take to successfully deal with the vexing problem of driver fatigue - - and the costly claims it produces.

Invest in Black Box Technology
Another claims fighting, premium-reducing step that bus companies can take is taking advantage of the rapidly expanding range of 'black box' technologies.  The use of electronic data recorders and other on-board video observation equipment, like DriveCam, not only afford you excellent empirical information to better manage your drivers, but also can lead to significant premium savings on the front end in the form of equipment installation subsidies and on the back end in the form of 'cleaner' loss runs which lead to lower premiums.

'Work' Your Claims
A close working relationship with your bus insurance company's claims examiners is critical to keeping your claims cost, and annual premium under control.  From reporting claims promptly and completely to providing accident scene photos and witness contact information, you and your drivers can nip what appears to be a costly claim in the bud.  Believe it or not, a bus company owner's best ally following a serious accident is his/her claims examiner, and the more specific and timely information that's provided becomes that professional claims examiner's best 'ammunition' in successfully managing the cost of the claim.  And, because underwriters work closely with their claims department colleagues when establishing your renewal pricing, it makes very good sense (& dollars) to maintain clear and frequent communication throughout the claims handling process.

Train, Train & Re-Train
While most bus companies have some type of formalized driver training programs for their new drivers, far fewer have refresher courses for all drivers and post-accident retraining programs for their 'experienced' drivers who have been involved in a reportable claim.  And, since drivers cause claims and claims lead to higher premiums, training and retraining has to be very high on your priority list to manage your insurance costs.  While there will always be a certain percentage of drivers who, despite a company's best efforts, 'just don't get it' and must be reassigned to non-driving duties or terminated, the majority of drivers will respond well to a properly structured training program.  Most bus insurance specialty companies like Lancer have the capability to provide the necessary curriculum and hands-on assistance needed to meet the challenging, but essential, task of keeping drivers properly trained.

Assign Drivers Properly
A simple operational step that you can take to reduce claims and, consequently, annual premiums is to match your drivers with the types of trips and equipment that accentuate their individual skills.  As coaches and buses become more and more sophisticated, a staggering number of claims can be attributed to a driver's unfamiliarity with the equipment to which he/she was assigned.  Whether it has a different turning radius, mirror configuration or other peculiar handling characteristics, drivers shouldn't be dispatched with different equipment than they're accustomed to and expect to 'figure it out' on the road.  Too often that becomes a trial and error process that results in very preventable claims.  Similarly, drivers who are accustomed to doing charter or tour work cannot be expected to automatically adapt to regular route or line work.  As with equipment adjustments, route assignment changes without proper discussion and training can become very expensive decisions.

Choose your Agents Carefully
While we mentioned the importance earlier of staying away from insurance company generalists and dealing with bus insurance specialists, much the same is true when you are picking an insurance agent or broker.  The bus insurance niche is a very specialized one, and most general insurance agents are not qualified to analyze the risks and coverages needed to protect a passenger transportation company.  Thankfully, there are several bus industry specialty agencies that are full participants in the industry and are completely qualified to obtain the coverages you need from a bus insurance specialty company with which they have an ongoing working relationship.

'Sell' Your Company
There's no better way to reduce your premiums than by providing your agent with all of the positive attributes of your company so he or she can accentuate the things you do better than your competitors.  Let the insurance company know what you do 'above & beyond' industry norms in the form of lower premiums in the safety, driver training and maintenance areas that makes you not only special to your customers, but also a better risk to insure.  Company websites, brochures, customer testimonials and the like go a long way towards convincing an underwriter that you run an exemplary operation and should be rewarded for your efforts.  Remember:  Underwriters crave information and the more positive input about your company that you present then through your agent will serve you well.                  

Randy O'Neill, Senior Vice President, has been with Lancer Insurance Company since 1984.  He has served Lancer in various management positions, and is currently responsible for Corporate Communications and Customer Service.  He has written extensively for motorcoach and bus trade magazines on insurance, loss prevention and risk management issues and has been featured as a speaker at dozens of Lancer Insurance Company policyholder seminars and as a speaker, panelist and moderator at state, regional and national bus and motorcoach conferences and conventions.