A guide to survival

A guide to survival

Property-and-casualty insurance premiums continue their dramatic increase for shippers, transporters and motor carriers.

While explanations offered by the insurance industry place most of the responsibility on the terrorist attack on the World Trade Center, the fact is that pricing increases began their inexorable rise long before Sept. 11, 2001.

Unquestionably, the attack exacerbated earlier recorded premium increases. However, the insurance industry was reeling from underwriting losses long before Sept. 11. For nearly nine prior years, insurers issued policies to attract premiums, which were invested in the equities market. When the stock market began its rapid descent, the noose began to tighten around necks of underwriters. Pricing began its upward spiral.

At a time when virtually all classes of commerce have experienced dramatic premium increases on major types of coverage, no industry has been pummeled with greater ferocity than the transportation industry. Price increases of 30 percent and 40 percent are common. In a few cases, property-and-casualty premiums have doubled during the last several years. The worst may be yet to come.

While there may be thousands of insurers in this country, there are today perhaps less than 25 viable insurance markets available to members of the transportation industry, including shippers, consolidators, air and ocean forwarders, and logistics firms. Mergers and acquisitions, insolvencies and restrictive underwriting postures inhibit aggressive marketing to transportation insurers.

Despite the bleak conditions, there is still much that can be done by the policyholder to reduce premium costs. Here's a guide to navigating one of the industry's most challenging times.

Choosing a broker:

Better an expert in the field

than on the green

The insurance broker that represents you must be dependable, competent and, above all, experienced in your industry. This is critically important to the company that does not have a professional in-house risk-management staff.

Forget about brothers-in-law and fellow golf club members when you choose a broker. If the broker can't differentiate between an air waybill and a storage receipt, his efforts are likely to produce disaster.

Select a broker who knows your business well. Insurance mega-brokers have an enormous talent pool of experienced professionals. But remember, bigger isn't always better. Particularly if the specialized talent you require is located across the country.

Don't overlook regional insurance brokers as an alternative marketing source. Their growth has been outstanding.

By far, the specialized insurance broker who is a leader in your particular industry segment is the ideal choice, especially if he controls large volumes of related business.

Professional matters:

The credentials any broker should be carrying

Never overlook professional credentials in your brokerage criteria for selection. Whomever you ultimately select to represent you should have either CPCU or ARM designations.

The ultimate measure of broker success for your business is obvious. The broker must obtain the broadest possible coverage for you at the lowest possible cost. Nothing else really should matter.

The more the merrier:

Consider using multiple

brokers

You have several alternatives available to you in the broker-selection process. If you pick several brokers to represent you in the marketplace, be absolutely certain that you designate only those markets you will permit them to approach.

Demand that each competing broker provide you with a list of the markets from which he wishes to obtain proposals. Grant each broker exclusive authority with those markets, and those markets only.

Be absolutely certain that each broker lists his choices preferentially. Ask to see his proposals to insurers. Confirm that each has identical underwriting data that is being submitted to each insurer.

Monitor each broker's activities on at least a weekly basis. Demand interim reports of marketing activity. Submit historical claims data, currently valued for at least the prior three-year period.

Begin the renewal process at least 90 days in advance of current policy expirations. Insurers need time to evaluate and price your risk.

When one's enough:

Getting the most from

a specialist

Alternatively, do not overlook the possible brokerage selections based upon the individual firm's conceptual report of how it will market your account.

If you are comfortable with a specialist, don't hesitate to grant exclusive authority to a single brokerage source who will represent you exclusively.

Many insurers prefer the latter alternative since they realize your exclusive authority will permit the brokerage firm to negotiate from a position of strength. More risks are being represented in this fashion. The results are frequently much more favorable.

Don't be needlessly concerned that a single brokerage source will be an impediment to your success. If confidence in the broker is weak, then you shouldn't use him at all, under any circumstances.

Alternative resources:

How a consultant can help

If you remain apprehensive about the outcome, retain an independent insurance consultant to supervise the marketing process. Consultants sell no insurance. Their function is to supervise your risk-management program.

By and large, I have found that insurance consultants earn every bit of the fees they are paid. They exercise the required supervision over the brokers. They possess a unique capability in knowing the capabilities of the insurers being offered your account.

Overall, risk management disciplines follow the same basic tenets of good business management. Do your homework, boost your efficiency and minimize your cost.

Thomas A. Laffey is chairman of Polaris Risk Managers Inc., a transportation insurance consulting firm. He was formerly insurance consultant to the Film, Air and Package Conference of the American Trucking Associations. He can be reached at (973) 882-3100, or via e-mail at polarisins@aol.com. On Insurance will be a monthly column.