SPECIALTY TRUCKING FIRMS & SOCIAL SERVICE AGENCIES
Increased demand for services, need for a significant number of trained, qualified, and responsible employees, and extremely tight budgets are common denominators for the specialty target industries in this month’s issue.
Specialty trucking firms are in great demand as the economy improves. However, qualified employees are hard to find and the Carrier Safety Act’s training requirements make keeping them very expensive.
Social service agencies remain in demand even with improvements in the economy. Government budget tightening combined with fewer and lower private donations are causing agencies to be much more creative in how they provide services.
Customers in both industries need agents and brokers who will work with them to analyze their unique exposures and find the appropriate markets for them.
HELPING STRETCHED-THIN SOCIAL SERVICES AGENCIES
Organizations serving the needy present opportunities,
despite their funding challenges
Even as the U.S. economy is starting to work its way out of the doldrums, organizations that exist to give people a break can't seem to catch any themselves. "The poor economy has had its effect on nonprofits for several years," explains Nancy Williams, CIC, vice president of marketing and sales at NIF Group. "Most nonprofits that were new or small and could not weather the storm went out of business when they lost their funding." Some, she says, consolidated into larger firms.
Today, near-record numbers of people live in poverty, putting increased strains on social service agencies and other nonprofits. At the same time, Washington's inability to find common budgetary ground resulted in sequestration, which heightened uncertainty for organizations working to help individuals who most need it.
According to Randall Hedlund, program director at Care Providers Insurance Services, the effects of sequestration are still filtering through. "Many social services agencies have started to brace for future cuts by limiting or restricting any hiring," he explains. "They're watching their budgets, because federal funds and money related to them may be impacted."
David Leventhal, director-Commercial E&O and Healthcare Liability at Catlin US, says, "We have seen, with very few exceptions, necessary cost-cutting measures across the board in social services. Many have had funding cut dramatically, and they also are suffering from decreased charitable donations brought on by the financial crisis.
At the same time, he adds, "We are seeing an increase in services being provided by fewer professionals and for less operating revenue. Unfortunately, until the economy fully recovers, we don't expect an increase in federal funding or charitable donations. Further fund freezing coupled with an increase in inflation would only further drive up the numbers of persons seeking help and drive down the number of services available."
"Not only are providers being asked to serve more people, there is also substantial growth in the number of agencies providing these services," explains Mike Liguzinski, divisional president, Specialty Human Services Division of Great American Insurance Group. "For instance, the number of organizations in the U.S. serving as homeless or temporary shelters is 51% higher than it was 10 years ago. Community organizations providing food services, such as food banks and soup kitchens, are up more than 40%. Those assisting with substance abuse and mental health are up 30%."
Need is driving this growth. "There has clearly been a significant increase in the number of people presenting for services," explains Brad Storey, director of risk management at Irwin Siegel Agency. "In New York City, for instance, the homeless population being served in shelters is up 19% in the past year alone." He cites several reasons for the increase, including greater unemployment, and says it's a national trend. "This isn't just an issue for organizations in major cities," he adds.
Growing demand and reduced public and private funding is stretching social service agencies thin. "Despite additional needs for services, agencies are being forced to cut back on important programs," explains Jack Roche, president, business insurance at The Hanover Insurance Group. "At the same time, retaining quality professionals is more difficult, due to an inability to pay competitive salaries, and staff reductions are taxing remaining employees."
Some social service sectors are faring worse than others. "My suspicion is the senior sector will face more pressure," explains Hedlund. "In many cases, they're not as well positioned to find alternative funding sources. They're less apt to have a fundraising mechanism in place to supplant shortfalls in federal funding."
While the ultimate effects of sequestration are being played out, certain groups may be harder hit than others. "The Department of Defense has been identified as one sector that will face cuts," says Nancy Williams. "Many social service agencies and other nonprofits provide contracted services to the department, for example, providing basic janitorial and landscaping services at military bases. These agencies could feel the pinch."
Growth in the number of people living in poverty is bringing new challenges to some service providers. "For instance, providers of services to the homeless, which traditionally focused on men's and women's shelters, now have to accommodate more families," explains Roche. "The numbers are greater and are taxing the availability for shelter, especially in inclement weather.
"Additionally, veterans now represent about 10% of the homeless population," he adds. "This presents a challenge to provide more specialized services, such as post-traumatic stress and disabilities."
According to Valerie Williams, director of marketing at Irwin Siegel Agency, increases in poverty also are affecting community action agencies and mental health facilities. "Studies show a clear connection between financial stability and physical and mental health, which creates an additional layer of support services needed," she notes. Adds Storey, "For most of these organizations, it's a simple math equation: More people are in need of their services at a time when the government is reducing the dollars to provide these services."
While few social services agencies are doing well, some are faring better than others. "Organizations that have been most efficient with how they deliver services are weathering the storm better," Storey explains. "For instance, models such as permanent supportive housing and programs like Housing First have been extremely successful and have been proven to be far more cost effective for those living in poverty with a mental health condition and/or addiction."
Nancy Williams adds, "While there is less money to go around, the reality is that government still does fund many organizations. It is the well-run nonprofit that serves the community on multiple levels that will rise to the top in funding. Other nonprofits survive because they have expanded their services to qualify for more funding or they've been able to ramp up fundraising to supplant or replace public monies."
According to Roche, providers of treatment for substance abuse and behavioral health are benefiting from health care reform. "Under new legislation, private health care, state health care and Medicaid are now required to provide coverage for patients in need of such treatment," he explains. "These changes also will provide opportunities for providers of shelter and education for recovering individuals, helping them to become better through more treatment and services."
Demographic changes are helping drive growth in services for older Americans. "With the aging of our population, facilities that cater to around-the-clock living needs are on the increase," explains Leventhal. "We've seen exponential growth in the small group home environment for dementia and Alzheimer's patients. These homes seem to be fully occupied and represent a unique alternative to the traditional, large-scale nursing home or assisted living facility."
Hedlund says organizations with alternative funding sources have somewhat brighter prospects. "Those with independent fundraising efforts and other private capital funding arrangements tend to be in better shape than those without such capacity," he notes. Adds Nancy Williams, "The greater the financial squeeze, the more social services organizations will be looking for other sources of revenue. Expect nonprofits to ramp up their fundraising even more as they try to bridge the gap, or look for them to get involved in more lucrative operations that bring in revenue."
Serving social services
According to Nancy Williams, "There is always opportunity in this class of business. There will always be social service agencies and other nonprofits—because there is a need. These organizations must carry insurance to maintain their funding, so there's a reason to buy."
Growth is taking place in the market, too. "We have seen an increase in services offered by social service organizations," explains Storey. "With so many in need on a national level, in both metropolitan and rural areas, retail agents have an opportunity to help existing organizations obtain proper coverage for expanded services and exposures."
Leventhal points out that social services clients are always looking to do more for less. "This should be the focus of retailers interested in expanding into this arena and building a sustainable and profitable book," he says. "Those who offer only a broad product line for a reasonable premium will win the battle, but not the war."
Risk management is the key to a long-term relationship in this class, he adds. "The more a retailer can offer in terms of protection—saving the insured future premium dollars—the more loyal the client will be," Leventhal says. "The agent or broker will prosper further, thanks to positive word of mouth within the community of these organizations."
Hedlund says that in tough economic times, prospects and insureds are looking for stability. "What will impact them is money," he notes. "They continue to want better coverage at more attractive pricing, and they want lower retention levels or first-dollar coverage.
"Organizations in this sector tend to have very inflexible budgets," he adds. "They depend on the insurance mechanism to provide a means of replacing damaged property or paying for liabilities that occur because, in most cases, they don't have the resources to deal with the unexpected on their own."
Storey points out the importance of deep client industry knowledge. "As with any business you're insuring, retail agents must understand the industry in a meaningful way," he explains. "For example, just knowing that your client serves the homeless is no longer sufficient. Do they provide shelter or transportation?
"Understanding the model they work within is crucial to understanding the exposures that they face," he adds. "Insurance for social service organizations is becoming less of a commodity. They recognize that having an insurer and agent who truly understand their business model and operations creates a valuable partnership that can protect and sustain their organization."
Roche adds, "We see the best agents really listen closely to their clients, to fully understand their missions, management and funding. And they use this information to help clients best manage their risks. Agents who teach and sell value, not price, are positioned to win.
"Social services customers appreciate the value that comes from professional expertise and advice and are willing to pay for it, especially when they understand it," he adds. "When their insurance is delivered in conjunction with valuable risk management support and advice, they will be loyal for years to come."
Liguzinski concurs. "All of these organizations need assistance and guidance from agents to determine the appropriate insurance coverage that will protect them and allow them to focus on their mission.
"Social service providers face unique exposures that may require specialized coverages, like sexual abuse and molestation, fire, professional and general liability," he adds. "Working with a knowledgeable carrier that is focused on serving these organizations gives agents access to the specialized coverages and expertise needed to help mitigate risk."
Adds Roche, "With increased business complexity and fiscal challenges, social services organizations can benefit from the advice of an insurance agent and expertise of a specialized carrier more than ever. In this challenging environment, having support from a specialist to help manage their risks, while delivering a competitive insurance program, offers the best combination of coverage and value."
Nancy Williams encourages agents to consider carrier stability, as well. "This can be a volatile class of business, so a super-good deal one year can be disaster the next, if the carrier exits the class because of losses or the client gets canceled because of one claim," she explains. "Both instances can position the client at a disadvantage at renewal time."
Hedlund offers the following advice: "Any time there's a changing environment, a smart agent who knows the client's business and understands coverages and how the mechanism works has an advantage. People will be looking for alternatives, and if you have answers to questions, you should be able to capitalize on that."
Liguzinski concludes, "There are opportunities in every community across the U.S., and there are a handful of dedicated providers that offer expertise focused specifically on these areas. With good partners, agents can attract and service these organizations that fill such a vital role in today's economy."
MOVING FORWARD WITH SPECIALTY TRUCKING
Challenges create opportunities for agents as economy recovers
Some segments of the specialty trucking market are experiencing significant growth. "What many refer to as America's dawning energy boom has had a positive impact on a number of our clients, whose super-load capabilities and heavy haul equipment serve as natural transportation solutions for the energy sector," explains Brent Moody, assistant vice president-underwriting for NBIS.
The downside of growth—in energy and in other sectors—is a driver shortage, which continues to affect carriers large and small. "Carrier Safety Act (CSA) ratings place a high priority on keeping the best drivers," explains Deane Sager, director of marketing for Northland Insurance. "Carriers are challenged to attract, hire and retain the best possible drivers. Driver-friendly policies, increased pay and benefits are all tools being used by motor carriers to retain drivers."
Craig O'Connell, CPCU, vice president-transportation at Lexington Insurance Company, is seeing the same trend. "Tank haulers, in particular, are being somewhat challenged with issues around rapid growth, thanks to the boom in fracking and the energy sector in Texas and the Dakotas," he explains. "They're suffering growing pains with driver shortages and under-qualified drivers."
According to Doug Setters, CPCU, president of Creative Underwriters Corp., "The trucking industry is slowly but surely adjusting to the CSA safety management system. The industry still struggles to find and keep good qualified, safe drivers." In addition, he says, truckers sometimes have issues with hours-of-service rules and regulations.
Rapid growth in the segment leads to other challenges. "Some of these operators may not be screening new applicants," O'Connell says, "or they may be losing track of data—for instance, CSA scores."
Andrea Dickinson, senior vice president of AmWINS Brokerage of Illinois, says trucking firms must constantly monitor CSA to make sure scores are within the acceptable national averages. "A negative score can have an adverse effect on obtaining insurance," she says. "Or it can certainly affect insurance rates."
The specialty trucking business is facing other issues as well. "For example, hours-of-service rules will change on July 1, 2013," says Sager. "This could potentially require extensive training for drivers to comply with those new rules."
Equipment costs continue to rise. "This has forced some truckers to trade in two trucks to purchase one new one," Sager notes. "More motor carriers are rebuilding older trucks from the ground up, buying what's called a 'glider kit'—basically, a new truck body—to put on the rebuilt truck. This tends to be more economical."
The cost of diesel fuel continues to be a major issue. "As diesel fuel prices continue to hover around $4 per gallon, carriers are focused on technologies that help them manage their fuel more efficiently," Sager comments.
O'Connell adds: "Putting energy-efficient trucks on the road is a big challenge, because that's being mandated by government. The use of on-board recording devices also is being pushed by the government." In addition, he says, the owners of specialty trucking firms don't know what will happen with legislative changes, fuel taxes, and road maintenance and improvements.
Claims severity is another concern. "A decrease that we've seen in frequency, due to safety and technology enhancements, is not being followed by a severity decrease," O'Connell notes. "Severity is on a real uptick." He cites a more sophisticated and aggressive plaintiffs' bar, which sometimes uses public CSA data in its actions against firms and drivers. This data also is being used by shippers to evaluate trucking firms.
"The industry is operating on tight margins," O'Connell adds. "There are a lot of pressures on an industry that has little top-line fluff to pay for them. They're trying to balance the need to make a profit with taking advantage of technology and safety enhancements." He expects to see mergers and acquisitions increase as these struggles continue.
Not all trends and issues present challenges. "We're seeing a continued uptick in both the residential and commercial construction arenas," Moody observes. "These are key indicators for our specialized transportation clients."
A tighter market
According to Dickinson: "The truck insurance market is tightening, and that will likely continue." Adds Setters: "The tail end of the soft market tended to make consistently unprofitable classifications vivid, so we'll see what I call 'surgical underwriting adjustments' as we move along this year."
Setters expects "an upward drift in transportation insurance pricing, along with some appetite changes and perhaps some tightening of underwriting requirements here and there. There will be some turmoil. But relax; it's a good thing."
Stacy Brown, president and managing partner of Freberg Environmental Insurance (FEI), has seen carriers change their appetite recently in the hazardous materials hauling segment. "This has resulted in some tightening and modest rate increases," he remarks, "but large fleets—those with over 100 units—still are very competitive. Higher rates, tightened driver guidelines and less competition will be more the norm for the remainder of 2013."
Dickinson says tightening is due in large part to several key carriers in primary auto liability exiting the class entirely. "With fewer carriers, we're seeing liability rates increase between 5 and 15 percent, sometimes more, depending on loss experience, CSA scores and other factors," she says. "I expect that to continue for the next few years."
Moody says many insurers that wrote commercial auto associated with the energy boom in Texas have pulled out for a number of reasons—largely inadequate rates. "There are numerous opportunities, but the market is dictating that these come at higher premiums," he comments.
"Many carriers are still trying to gauge exactly how they'll approach these opportunities," he adds. "They're cautious in the wake of lessons learned in Texas, as well as storms like Sandy and Isaac, that have impacted the macro insurance climate."
O'Connell is seeing fewer market entrants. "The number of carriers exiting the market is probably outpacing by two to one the number of insurers writing business with certain attachments and at certain limits," he says. "They're leaving mainly due to profitability."
"The recent $5,000/$10,000 split workers compensation mod calculation has a negative impact on mods greater than 1.0," says Moody. "Also, transportation firms continue to face challenges associated with the Federal Motor Carrier Safety Act's data and scoring requirements. Much of our current risk management efforts are aimed at educating and assisting clients in these areas."
Dickinson says truck brokerage operations pose a distinct challenge. "Truck brokers have unique exposures that require the right coverages," she notes. "Very few markets will offer coverage for brokerages because of loss-related judgments."
Still, she says, there are a lot of requests. "Truckers are pursuing brokerage opportunities and contracts because this can be extremely lucrative," she explains. "They need to be educated about the legal and financial liabilities they face."
Adds Setters: "The transportation insurance industry needs to work with clients to make sure they make the best possible use of available loss control resources."
Agents and brokers can find success in specialty trucking. "Specialized transportation serving the energy sector presents the greatest opportunity right now," says Moody. "We're seeing significant migration of equipment and manpower to West Texas, Pennsylvania and North Dakota, to name a few. Specialized transport is imperative for everything from drilling rigs to heavy machinery to the construction equipment being used at these sites."
O'Connell concurs. "The energy sector is growing by leaps and bounds, far outpacing the economy," he comments. "It almost can't handle the growth. Agents and brokers would do well to look at smaller to mid-sized operations, and add value by helping them maintain CSA data and selling themselves to shipping companies."
"As the oil and gas industry continues to expand, companies that support drilling are rapidly moving in to service drilling companies," adds Cynthia Piersch, underwriting specialist at FEI. "Trucking firms that haul salt water, crude oil, produced water and drilling muds are expanding to meet the needs of active drilling sites, and they're subsequently supporting completed and existing wellheads."
Piersch says many trucking firms go on "milk runs," emptying storage tanks at wellheads and delivering the wastewater to disposal facilities. "This is really a booming area of the market segment right now," she remarks.
According to Setters, energy industry trucking growth will become more significant as the nation continues to develop domestic energy sources over the next few years. "Learning to underwrite trucking for environmental risk circumstances is vital," he asserts. "This benefits the environment, and it also supports national security and could speed a return to national financial prosperity."
The sector should become even more appealing as road improvements occur. "In energy industry trucking, typical underwriting challenges are exacerbated by infrastructure, as well as environmental elements," Setters says. "To stay upright, 18-wheelers need good rolling surfaces all along the route. When roads to and from oil or natural gas fields or coal mine sites are built to accommodate and designated for heavy trucks, energy industry trucking risks should become more attractive."
Sager points to other opportunities for agents and brokers. "Intermodal transportation is increasing, primarily due to limited capacity in the trucking industry," he says. "Shippers are looking to shift some freight to intermodal, which typically combines rail for the long haul and truck for pick-up and delivery of the load."
Making it work
Dickinson encourages agents who are interested in pursuing specialty trucking to focus on a particular segment. "Become an expert in that field," she advises. "Your customers need the peace of mind that comes with knowing that you, as a specialist, have an unparalleled understanding of the coverage you are handling.
"Educating yourself on new and emerging exposures, such as truck brokerage, can help set you apart from the competition," she adds. "Make yourself a student of the issues your client can face, and you'll be an invaluable resource."
Brown says businesses related to oil and gas production are good targets. "The geographic distribution of oil and gas production is expanding," he notes. "While fracking is a controversial issue, particularly in the eastern U.S., wells are still being drilled and they need to be serviced."
According to Diana Pantle, program manager of FEI's Hazardous Materials Hauling Program: "Gasoline, milk—yes, milk is considered a hazardous material—medical waste pick-up services, soil remediation contractors and hazardous waste haulers all are good, solid market opportunities that exist in many communities across the U.S.
"Many standard auto markets won't consider these operations, due to potential pollution exposures," she adds. "Dealing with a specialty market that understands exposures associated with hazardous waste hauling is essential."
Nicole Lawrence, regional vice president of Northland Insurance, points out that trucking insurance is still a relationship business. "Agents and brokers need to be visible, accessible and knowledgeable in order to meet the unique needs of their trucking customers," she says.
"Superior customer service by the agent or broker remains critical to allow for trucking operations to meet shipper requests," Lawrence adds. "It helps them keep their operations running smoothly so they can seize every available opportunity for business."
O'Connell concurs. "I was talking with a broker recently who said that selling insurance is the end game," he says. "The relationship he builds ahead of time is paramount to making that happen. He doesn't sell a particular coverage or price; he sells a service—focusing on the insurance company's claims and loss control performance, and selling his own knowledge and ability to sort through the trucking company's data as an underwriter would. A successful trucking broker helps the insured improve its operation and then sells the risk to the underwriter. In that scenario, everyone wins."
According to Setters, agents and brokers need to prepare clients for a changed pricing environment. "The past insurance market cycle taught insureds to expect rate reductions every year at renewal," he says. "With pricing starting to drift upward, agents should get in front of the issue and address it with their trucking insurance clients long before renewal.
"Offset the unpleasantness of general rising prices by selling value," Setters adds. "Sell up. Encourage clients to add some coverage armor. And always be sure to sell 'you.'"