It appears that the new frontier of convenience is unmanned aerial systems (UAS) or what are commonly called drones. Certain segments of the aviation insurance market provide coverage for this new technology and other insurers must be considering it. Agents should become acquainted with aviation experts who can find the markets for their customers as they explore and determine how this technology can help them expand their business.
The "new" does not necessarily eliminate the "old," especially when it comes to convenience. Convenience stores continue to thrive and expand. Gas stations offer easy shopping and small grocery stores provide fuel. Both are expanding their offerings so a customer can fill up the tank, purchase milk or other staples, and pick up a tasty lunch, dinner, or snack, all in one stop. These operations have unique exposures and areas of concern, but the agent who researches these needs will likely find a very lucrative niche.
GAS STATIONS, CONVENIENCE STORES EVOLVE
As many scale up in size, opportunities and insurance needs also grow
By Dave Willis
Back in the day-okay, a couple of decades ago, anyway-gas stations were gas stations. Convenience stores were convenience stores. And there was not a lot of intermingling. Today, it's hard to find one that's not the other, at least to some extent. And many are taking the combination to another level.
"Today, gas stations/convenience stores are evolving into hybrid grocery stores, as many of them look to compete with larger supermarket chains," explains Kevin Wondra, corporate marketing manager at Society Insurance. "The thought is, 'Why not pick up your milk, eggs, bread and juice at the gas station on your way home, rather than make another stop?' "
He points out that many facilities are scaling up in size. "Modern renovations are making them more attractive to busy consumers," he notes. "The units-and the market-are absolutely growing."
But with that growth comes some additional risk. "For example, those businesses with expanded delis and kitchen capabilities create additional exposure in terms of adequate fire protection," he adds.
In addition to fire hazards, gas stations and convenience stores have other exposures. "For example, they can be uniquely exposed to assaults and robberies," says Derek Broaddus, senior vice president, excess casualty at Allied World North America. "Additionally, retail liquor sales at convenience stores can lead to vicarious liability suits."
"One unique exposure is the contamination of the fuel located inside the underground tanks." Wondra explains. "This contamination can occur from surface water from parking lots seeping into the tanks. Under a typical commercial package policy or BOP, surface water run-off is excluded and would not respond to this type of loss. A special endorsement would be needed."
Jason Kalinowski, director of commercial binding authorities for Quaker Special Risk, points to other exposures operators of these facilities should consider. "A number of different property enhancement coverages could be needed," he explains. "In addition, these businesses need to be sure they're adequately covered for crime, theft, utility services and equipment breakdown."
The insurance marketplace
Agents and brokers interested in serving these businesses will find a relatively stable insurance marketplace. "For the most part, I'm not seeing a lot of fluctuation in the market right now," explains Kalinowski. "It's a class where you do see some programs with appetites that change, based on profitability."
He points out that some admitted markets operate in the class; some of these have programs designed specifically for the businesses. "The E&S industry deals with exposures that fall outside of what most standard markets want-particularly locations with losses and those with 24/7 operations," Kalinowski notes.
Wondra says that, while the GSCS market has always been competitive, "not all carriers are comfortable with the exposures they present. Anytime gasoline is involved, for example, there's a risk of fire or explosion."
He adds, "The property and casualty insurance piece is relatively inexpensive, when you compare it to the high costs of pollution coverage." Leakage of underground storage stores is a big cost driver for pollution cover.
"The costs to test, excavate, and remediate such a loss is subject to local, state and federal standards," he explains. "This makes the protection an expensive pill to swallow." He points out that pollution insurance typically is offered exclusively through the excess and surplus lines market.
Kalinowski points out the prices tend to vary from market to market. "For the liability exposure, the major difference is the rating base," he explains. "Some markets will rate off of gallons sold. Others will rate off of the number of pumps at the station."
"On the excess side," says Broaddus, "several specialty carriers have exited the class. This may be because of losses on the auto side. Pricing in excess is up modestly overall. On the primary side, some captives have emerged and are fronted by recognizable carriers. These are generally for larger risks, and the captives will do general liability and auto physical damage and liability, but no excess." He says these primaries are on standard ISO forms.
"The excess market seems to be flat to up, with no real expansion of coverage," Broaddus adds. "There have been some specialty markets that have adjusted their pricing in this business. Some long-term excess players have cut back their excess capacity, which reflects the volatility and catastrophic nature of the excess claims these operations can face."
Agents adding value
Agents and brokers interested in serving gas station and convenience store customers can learn more about the business by engaging with trade associations. "Most states have a convenience store and/or petroleum haulers association that they can join," explains Wondra. "They meet on issues regarding product taxation and other forms of legislative 'pain' that could affect the sustainability of their business."
To get involved on a larger stage, he points to the National Association of Convenience Stores as a possible resource. "Learn about the key issues in their industry-the things their trade associations advocate for on their behalf," he notes. "Understanding their pains could help retail producers work with prospects and customers to find beneficial solutions."
He also recommends forging relationships with vendors that serve the gas station and convenience store industries. "This will help agents better understand the business model, concerns of owners and operators, and the language they speak," he explains.
Broaddus says some agents may want to team up with fellow insurance professionals to capitalize on market opportunities. "There are some specialty brokers out there who have a specific expertise in the placement of retail petroleum risks as well as petroleum transportation risks," he explains. "Connect with them." Wondra agrees: "Work with insurance carriers with a niche expertise who really understand the exposures."
Whether alone or with a partner, it's important to bring general insurance and risk management industry knowledge to the table. "Cyber liability is one issue that affects customers in a number of industries," explains Broaddus. "Retail convenience stores take and store customer credit card information, so they need adequate protection. Agents and brokers can use their expertise in this area to help customers and prospects in the gas station and convenience store market."
Broaddus also identifies knowledge of environmental liability for storage tanks as another important area where agents can help. "Also, employment practices liability insurance and directors and officers should be addressed with these operations, no matter how big or small they might be," he notes.
Wondra points to franchise-related exposures. "When people hear 'franchise business,' they immediately think of restaurants," he explains. "However, most of the gas stations and convenience stores today operate under a franchise name, such as BP, Mobil, Clark, Citgo or even Circle K or On the Run.
"Within the contract with their franchisor may be a requirement to update property with new designs and materials after a loss occurs," he adds. "This is typically outside the scope of most insurance programs."
Other related exposures exist, as well. "A business stands the risk of having its reputation tarnished if another gas station or convenience store that operates under the same franchise name suffers a covered loss or other event, and that affects the revenue of the insured location," he says.
To understand other risks and exposures gas stations and convenience stores face, he offers agents some simple advice: "Ask them! Craft your questions in a way that you can delve into what might be concerning these business owners and operators."
Once you've developed some expertise and built a book of business, leverage it. "The experience of the broker and the relationships they have can lead to referrals that bring in even more business," Kalinowski explains.
Beyond that, Wondra suggests, "Partner with an insurance carrier to create an educational forum, seminar or program on a topic that would interest gas station and convenience store owners. There are a wide range of issues, ranging from inventory loss prevention and robbery and violence deterrence to necessary features of a security/surveillance system and safety of employees."
He sums up his-and others'-advice like this: "Become a trusted expert to their industry, rather than someone interested in just selling them a cheaper insurance program."
EMERGING TRENDS IN AVIATION INSURANCE
Opportunities abound in new areas and old
By Dave Willis
Technology advances, efficiency gains and growing worldwide demand spell relatively good times for the overall aviation business. "Taking into account static global economic conditions, each segment of the business is healthy," explains Richard Maher, aviation practice leader for Allianz Global Corporate & Specialty.
"As aviation commerce evolves," he adds, "each segment enhances its utility and value, as demonstrated by recent developments in geo-mapping, unmanned aerial systems, medical transport, agribusiness, surveillance, and many other strategic aviation applications."
According to Brian Rivers, vice president at Starr Aviation, the aviation business appears steady these days, with one notable change. "The most significant change over the past year has been activity in the Unmanned Aerial Systems (UAS) market," he explains. "The FAA is still formalizing details in the regulation of this area, but there is a demand for the UAS market."
Chad Trainor, ARM, vice president and manager at Arlington/Roe, concurs. "The hot topic this year has been Unmanned Aerial Systems, more commonly known as drones," he notes. "Everywhere you turn, it's drones, drones and more drones!"
He says drones of all sizes are entering the aviation arena. "They're being developed and could be used in entertainment, law enforcement, surveillance, security, military, video, photography and agriculture management, to name a few," he adds.
"In the major airline segment," says Maher, "consolidations, continued increase in demand, lagging infrastructure improvement and professional pilot labor supply shortage are a few examples of results and symptoms of a dynamic industry."
Industry manufacturing is strong, he adds, with activity mostly keeping pace with worldwide demand. "Advances in technology-avionics, composite materials, airspace management and propulsion efficiency-all contribute to a robust aviation manufacturing environment," he notes.
"Growth is strong at the high end of the business aviation product and services line, with middle and lower market product and services stressed to varying degrees," he adds. "Gulfstream, Dassault, Cessna and Bombardier and their suppliers are experiencing good product demand. Ground service providers are subject to strong M&A activity with large amounts of available capital."
According to Rivers, other than drones, much of the business remains constant in the U.S. "The majority of growth and deliveries in aviation have been in the international market," he explains. "Also, the drawback in Iraq and Afghanistan has led to a reduction in the number of Department of Defense contracts available."
Insuring the business
The aviation insurance marketplace remains very competitive. "Pricing is relatively stable," explains Rivers. Some reductions are being seen, he notes, and some increases are occurring where there has been loss activity or adverse operational changes.
According to Maher, "Too many providers for too few customers produces obvious results-decreasing rates and premiums, compromised underwriting standards and service levels, coverage expansions, and rising expense ratios. Premium size and account experience determine the competitive degree of any given renewal." He says the airline segment represents the largest concentration of high-value accounts and seems to be most susceptible to pricing pressures.
"A few new carriers have entered the marketplace over the past few years, further adding to the competition," says Trainor. "While the market has been and will continue to be in a soft position, we are seeing signs that premiums have leveled off."
Rivers says one issue that remains is an over-insurance of hull values, which is a carryover from before 2008. "Values have come down dramatically and they remain down," he explains. "Over-insurance on hull values can lead to problems if and when a major claim arises. It could lead to an aircraft being repaired or replaced rather than totaled, in the event of a significant loss."
According to Rivers, the broker side of the business remains very competitive. "Most of the insured pool stays relatively stable and is well known to the brokers that specialize in aviation," he explains. "The areas that are new obviously provide growth potential." In addition to new purchases or new startups, this has been the DOD contractors in the past few years. Now it's the emerging UAS market.
Trainor points out that underwriters continue to develop new and expanding criteria for the Unmanned Aerial Systems class of business as their uses encompass a broad and expanding spectrum.
Rivers says, "One proven way to approach developing markets is to really understand the challenges they face and to find a carrier that is willing to listen to these challenges and develop solutions to meet their needs." His firm is creating a policy form specifically for UAS operators.
Maher views the aviation insurance industry as one that's well populated with specialist brokers that provide highly focused services in a relatively narrow band of the entire insurance industry. "The highly specialized independent broker needs to think about expanding his or her insurance product line to maintain annual revenues," he explains. "It has become increasingly difficult to do so on a specialty account-by-account win/lose basis."
More important than ever, he adds, is the value of renewal business, both to the broker and the underwriter. "Increasing activity and resources continue to be allocated to new business production, sometimes with the unintended consequence or tendency to underserve renewal business. It is increasingly important that a broker or agent be perceived by the renewal client as providing product integrity accompanied by value-added extras, all at a reasonable price."
According to Maher, there are areas where insurance providers can add value for their clients. "Brokers and agents, as well as underwriters, must continue to broaden their capabilities in the areas of risk management, safety/engineering, and loss control services," he says. "These activities, once handled in-house, are being pushed out by the client to third-party specialists, brokers, agents, and underwriters. There is great opportunity and additional revenue for providers who are out ahead in this area."
Trainor recommends addressing products liability issues. "As products manufacturers diversify their businesses, more and more are turning to the aviation segment. We see medical, auto and plastics manufacturers, to name a few, turning to aviation to supplement their business."
He also sees situations where "an OEM manufacturer may not know that their 'small manufactured part' ends up in an airplane down the logistics pipeline, thus creating an aviation exposure. Aviation sales for a manufacturing company may be a small piece of its overall revenue, but could very well be excluded by its current manufacturing products liability policy if an unknown aviation use created an uncovered loss scenario."
Aircraft is another segment worthy of attention. "Aircraft sales have been increasing and, therefore, ownership is increasing," he notes. "Risk management audits, progress reports or stewardship reviews with prospects and current clients could uncover aviation opportunities."
For example, he says, a client may have the desire to purchase a plane or a client company could be considering renting or chartering a plane, creating a non-owned exposure. "We help a lot of agents cross-sell aircraft exposure coverage to their current personal and commercial lines clients," Trainor says. "We also help agents who have that one plane land on their desk and they're not sure what to do with it. Aircraft insurance is a niche and we've been doing it for over 20 years, educating our agents along the way."
And given the "drones, drones and more drones" environment, this newer segment may offer opportunities. "Regulation will continue to develop as the uses and purposes of drones increase," he explains. "Some companies are providing drones as a service or using them to help manage their own businesses. Drone manufacturers are constantly exploring and developing new technology, producing drones of all sizes and purposes."
He adds, "Agents should keep all of this at the forefront as they look to further protect their clients. Asking the questions regarding the manufacturing or use of drones in their prospect's or client's business is critical. The insurance markets are out there to provide protection for these risks, but it's up to the agent to uncover the exposure."
Maher encourages agents to hire or align with experienced professionals in the aviation field and also become active in one or more of the several prominent aviation trade associations. "National Business Aviation Association, Helicopter Association International, National Air Transportation Association and Professional Aviation Maintenance Association are a few worth considering," he says. "Also, the Aviation Insurance Association is a robust group dedicated to the industry, and it offers CE courses with an aviation perspective, as well as the Certified Aviation Insurance Professional (CAIP) certificate."
Rivers stresses the value of good customer service. "One thing brokers can do to manage risk and exposures for their clients is to really understand the exposure that they are placing to make sure that proper coverages and limits are offered to cover these exposures," he says.
Trainor concludes, "Aviation is a great industry. The degree of safety precautions that go into aviation products and work environments is like no other. Science and technology are at the forefront of the aviation industry. And you get to work with a great group of people who have a passion and love for the industry."
Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.