Covering para-transit & taxi cabs
Some movement in and out of market, but specialists maintain their focus
By Dave Willis
Operating costs, employee turnover and general economic conditions present ongoing challenges for para-transit and taxi cab owners. Insurance professionals active in the market suspect that a hardening insurance market in 2012 and beyond may place added bottom-line pressure on these firms.
"One of the biggest issues facing para-transit or non-emergency medical transportation providers today is funding cuts and reductions in Medicaid reimbursement rates," explains Matt Andrews, CPCU, ARe, general manager-community and medical transportation, for National Interstate Insurance Company. For the most part, these cuts are the result of ongoing government budget crises on the federal, state and local levels, he adds.
Sheila Shaw, senior vice president for Irwin Siegel Agency, concurs. "While most para-transit operators operate as for-profit entities," she explains, "they still get a lot of their reimbursement from federal, state and local government funding sources. This means they will continue to see cuts."
Even with high unemployment nationwide, staffing is a challenge for para-transit operators. Kent Clements, vice president at Markel's THOMCO unit, explains, "High turnover, a chronic issue for para-transit operators, is not likely to improve."
Shaw says maintaining high driver quality is part of the challenge. "One of the biggest struggles they face is finding drivers who meet the criteria of having a clean driver's license and meeting physical requirements," she says.
Clements points out that fiscal challenges and driver quality are interrelated. "Increasing operational costs occurring in tandem with compressed, and at times uncertain, revenues make it difficult for para-transit operators to offer wages that attract and retain safety conscious individuals," he explains.
"Although no clinical interventions are provided by drivers, the inherent fragility of the para-transit client population requires that transportation is provided by individuals who are aware of and will mitigate risks for injury," Clements adds. "The applicant pool is such that appropriate training must be followed by formalized monitoring of employee behaviors. The selection of cost-effective behavioral and engineering controls remains a dilemma for para-transit firms."
Some of the same issues affect the taxi business. "Key issues for taxi owners are operational economic costs, such as longer hours, more shifts, cutback on maintenance, driver turnover and fuel costs, explains Andy Jaz, CPCU, director of Markel's public auto/taxi liability operation. "The taxi industry is sensitive to present day economic conditions, which means cutting large costs such as insurance is a paramount factor to survive."
Adds Andrews, "For taxi cab operators, another important issue is the evolving boundary between 'employee' and 'independent contractor' statuses, and their application to taxi cab drivers."
Insuring the markets
In the midst of operational challenges, the para-transit and taxi cab owner communities may expect to face a somewhat tougher insurance marketplace. "Competition remains stable," says Clements, "but we are starting to see some rate increase due to adverse underwriting results." Jaz adds, "Competition appears to be stabilizing in the taxi cab arena, and carriers are trying to increase rates, especially on renewal business."
Andrews sees the insurance market for para-transit and taxi cab operators starting to harden, as well. "The total number of competitors we see nationally has stopped growing," he explains, "and we're beginning to see competitors take underwriting actions on their books, whether it's restricting the size of account they will entertain, seeking increases on renewals, or even leaving the niche entirely."
"Transportation is a tougher class of business," adds Liz Friedman, underwriter at Irwin Siegel Agency. "Carriers that were competing for this business a year ago are either raising their rates or exiting the market."
She says some carriers are putting restrictions on accounts. "I have seen some carriers limiting the types of vehicles they will insure in a fleet," Friedman explains. "For example, a risk may have to separate their stretcher units onto another policy, as some carriers don't allow the combination of traditional vans, wheelchair-equipped vans and stretcher units. Or they might limit the percentage of certain types of vehicles."
Even as some carriers are tightening underwriting and even moving out of the market, others are viewing the business more favorably. "There are still some recent entrants who are looking to grow market share quickly," Andrews explains. "It's debatable whether they are doing so on a profitable basis."
"This is a class of business that typically has severity issues on the claims side," Friedman notes. "You could look at the loss history on an account and it might look good, so the carrier would price it very competitively. However, when the account has a loss, it often involves higher dollar amounts, and that takes some carriers by surprise."
She adds, "The toughest segment of the para-transit arena is start-up entities, especially those that do not have experience in providing transportation services and the very small operators with only a few vehicles."
Some carriers are tapping technology to help improve safety. "We are seeing a growing trend where insureds in the para-transit industry are adopting Accident Event Recorder (AER) technology," notes Andrews. "It offers a way to monitor and train drivers while also mitigating their claims. We're a big supporter of the use of this technology."
Specialty and knowledge
Agents looking to serve the market need to know the business. "This applies to just about every line of insurance," explains Clements. "Specialize, specialize, specialize. Insurance specialization and niche underwriting are now the rule, rather than the exception.
"Insureds want an agent or broker who specializes in their industry and are the experts when it comes to the coverages they require," he adds. "For instance, just as we specialize in para-transit underwriting, having an agent or broker who also specializes in para-transit assures all parties are 'speaking the same language' and no coverages are overlooked."
Specialization needs to be coupled with awareness of what drives buying decisions, notes Shaw. "Retail agents should be aware that this is a very price-driven segment," she explains. "Price per unit is the primary question.
"From what we have seen, most para-transit operators want the minimum limits required for their contracts," she adds. "They are not as interested in loss control services and may not see them as added value. As a segment, there is not a lot of loyalty. If they can save money per unit, they will move from year to year." Para-transit operators also are less concerned with carrier financial strength ratings than are other industries.
That does not mean that agents should ignore what they know makes for better risks. According to Andrews, agents and brokers should search for ways to improve their insureds' operations. "That could involve AER technology, defensive-driver training programs, drug-testing programs, and other measures, he says. "As is the case in any niche, those agents who become experts tend to prosper because they provide more value to their clients."
In the end, knowledge is key. "Agents and brokers need to do their homework, just like they should for any market they serve," Andrews explains. "The more they know about the industry, the operators, and the regulatory environment, the greater the credibility they will have with the insureds and the underwriters."