Bus and Motor Coach Library

Controlling Bus Insurance Premiums

Author – Tim Delaney, Lancer Insurance (2004)

The unprecedented insurance market shakeout of recent years has left many motorcoach and bus company managers wondering how they should adjust their insurance buying strategies to exert more control on premium fluctuations.
With excessive losses leading to the withdrawal of more than 30 insurance companies which had been active in the market over the past 20 years, bus owners are beginning to realize that their insurance company relationships need to change in order for them to bring premium predictability to their budgets.  This modified approach to protecting assets cannot only help them control premium costs but, by becoming a more aggressive risk taker, company management will consequently take a more critical view of everything from driver selection to claims handling.

Deductibles Are The Key
The first step for a bus company manager is to do his homework.  Specifically, he needs to closely review his loss runs for the past five years (10 if possible) and decide where to draw the line separating historically predictable (in type & cost) claims from truly fortuitous ones.  As simple as this exercise sounds, it can save a bus company thousands of dollars each year because bus insurers are often happy to lower premiums and give a considerable "credit" to accounts who practice proactive risk assumption, i.e. take a deductible.

The Math Is Simple
It's much more costly for an insurer, than a bus company to handle "predictable" claims because of the expenses (reinsurance costs, brokerage fees, bureaucratic assessments, taxes, etc.) associated with running a highly regulated insurance company.  All these fees are charged.  In other words, when a bus company funds for claims under its deductible, every claims dollar it pays costs simply that - one dollar.  If an insurance company pays that same claim, it has to charge almost $2.00 in order to pay for all the costs that are tied to the "Premium Dollar".
Keeping the risk in house gives you dollar for dollar value; trading dollars with insurers by purchasing first dollar coverage for liability exposures that are historically predictable is just not good business.  More often than not, the credit (i.e. lower annual premium received by the bus company that takes a deductible) will exceed the dollars it pays on claims under that deductible.

Inferior Claims Management Myth
One of the more curious reasons that more bus companies avoid taking prudent deductibles on their liability insurance is the mistaken belief that their insurers will handle the claims under the deductible in a different way than they handle their own.    Nothing could be further from the truth.
It's hard enough for an insurance company to develop one culture in its claims department no less have a second one for deductible claims.  Also in the bus claims business, you never know when the deductible will be breached by a surprise development from a plaintiff as 80% of the claims are bodily injury.  At bus insurance specialty companies like Lancer, all claims are fought hard from day one.  Files are managed and all the tools of the trade (i.e. investigators, reconstructionists, outside counsel, etc.) are used as needed.
For example, most insurer companies encourage all of its policyholders to promptly report all claims regardless if they think the ultimate cost will be above or below the deductible.  Most importantly, a committed insurer will "fight" to protect the interests of its customer regardless of who is the ultimate payee.  On a very basic level, the insurer is strongly motivated to help its insured get a strong handle on the claim, because, if it doesn't, the insurer's layer (above the deductible) will soon enough be breached and, at that point, it will become much more than merely an interested party.

Where To Draw The Line
The key once again is an understanding of how one can determine the level of risk a company can handle under its deductible.  A good rule of thumb is to go back over 10 years of claims data.  This review will help determine at what level the company's losses are predictable assuming a constant fleet size and composition over the period.  For example, if an operator says that, on a 10-year average, $25,000 in losses is almost certain to occur based on historical data, he or she should accept (and fund for) that "known loss" rather than transfer it - for a premium - to an insurer.  In short, assume the known and insure the unknown - and catastrophic claims. 

It's All About Drivers
Drivers cause claims and claims lead to higher premiums.  Plain and simple!  While bus company management can and should do all it can to hire, train and re-train the right drivers, inevitably some bad apples will slip through and end up being responsible for an inordinate amount of accidents.  Experience shows that the only way to deal with the problem is by terminating the bad drivers even if that decision forces equipment to stand idle while a replacement driver is sought.  Any revenues lost will be a drop in the bucket compared to the potential judgment against the company if a driver company management (and plaintiff attorneys) knows to be a problem is allowed to continue driving and gets involved in a serious accident. 
Not surprisingly, these bad drivers often move from one company to another - - always one step away from being identified.  Fortunately, a good insurance company's database can ferret many of them out and help its customers check on new hires that might be coming to them with "excess baggage".  
It's important to receive authorization from driver applicants allowing performance of the proper due diligence on these individuals whose driving history might not meet company standards.

EDRs, Onboard Video Management Tools
Electronic Data Recorders (EDRs) and on-board video observation equipment are excellent technological tools for management to use when assessing driver performance. 
The bus industry versions of "black box" technology allow driver trainers and supervisors an opportunity to monitor their drivers in an empirical rather than anecdotal manner.  Measuring g-forces, brake applications, speed and other variables has a dual benefit:  first, the driver should perform more cautiously knowing his/her actions are being monitored; and secondly, if he/she doesn't, management has a solid body of evidence to rely on when considering suspension or termination proceedings. 
While the "success" of implementing such technologies is still being evaluated, the early returns look like significant claims savings can be achieved which should yield future premium savings as well.  This is doubly so if you happen to have a higher level of deductible.  An added bonus of onboard video equipment is the strong deterrent effect it has on claims fraud. 
Another surefire way to lower claims - and annual insurance premiums - is by dealing with the industry's dirty little secret - driver fatigue.  An analysis of the over $700 million paid out by Lancer Insurance Company's claims department since 1986, shows that about $275 million of the total can be linked to driver-fatigue related crashes.  That's almost 40%! 
To start reducing that staggering number, bus company managers need to empower their drivers to stop trips when they are unfit to continue.  Drivers and their families must also know what they can do to assure that a well-rested individual, rather than a fatigued "accident waiting to happen" driver shows up for work.
Finally, reducing claims and premiums, might be as simple as evaluating a bus company's mix of business.  If most losses are coming from a specific type of operation (e.g. line runs, night trips, etc.), think about eliminating or curtailing that operation.  Also, make sure that the "right type" of driver is being matched to the "right type" of work.  For example, older drivers may not be suited for overnight trips or long tours.

Who's Handling Your Claims?
Whether you have a deductible or not, whoever is handling your claims holds the key to your company's success - or failure.  Since over 30 bus insurance companies have withdrawn from the market or have gone insolvent since 1986, handling bus claims is obviously much easier said than done.  But when you consider that claims resulting from a bus accident often involve: multiple claimants; multiple jurisdictions; bodily injury 80% of the time; a $5 million liability limit; and, perhaps most important, claims from a company's regular riders, it's imperative to work with highly skilled claim professionals who specialize in the passenger transportation sector.

Take Action Today
Clearly, there are steps motorcoach or bus company managers can take to get a better handle on their insurance costs.  The prudent use of deductibles on liability insurance coverage, a more proactive stance regarding claims management, and a tougher approach to driver selection training and discipline are all steps that will reap benefits - and quickly.

            Mr. Tim Delaney joined Lancer in 1982 and serves as a Director of Lancer Financial Group.  His background includes 28 years of insurance and reinsurance experience with Frank B. Hall & Company, American Risk Management, Inc. (Reiss Group), Delaney Intermediaries, Inc. and Lancer Financial Group. 
            Mr. Delaney is a graduate of the United States Merchant Marine Academy where he was selected for participation in the "Kings Point Scholar" program.  He holds a Masters degree in finance from Fairleigh Dickinson University.