Pulling together in the truck insurance market

THE MOST recent hard market, from which we're perhaps just beginning to emerge, has been harsher than usual, and the trucking insurance niche has been affected like all others. Many of the factors leading to the hard market are fairly easy to identify: the attacks of 9/11, hurricanes and other catastrophic losses; lack of tort reform; the decline in the stock market; and asbestos, mold and other environmental issues.

Mismanagement has also played a role in the difficult market. In the trucking insurance industry, there's enough blame to go around for everyone. Reinsurers have been accepting carriers' reported results without performing thorough and comprehensive audits. Primary insurers haven't adequately evaluated their trucking clients' financial conditions. During the soft market they discounted premiums year after year, until they offered coverage practically at a 50% discount from a few years earlier. MGAs and retail agencies have played their parts, rounding up prospects during soft markets with less concern about how well-qualified the prospects were.

But the participants in trucking insurance should realize they are "all on the same side." Carriers, MGAs and retail agencies seek profits through proper premiums and low costs. Trucking firms want low premiums and coverage for as many situations as possible. I'd like to suggest, contrary to the conventional wisdom, that these goals don't have to be mutually exclusive. We can work together to analyze a client's loss experience and develop strategies to reduce operational and insurance expenses through effective loss control.

We've managed to build a successful MGA in the trucking niche by understanding the need for everyone to work together responsibly to write profitable, stable business. We strive to make it easy for our partners and clients to do business with us, and we hold them accountable, just as they hold us accountable. In this article, I'll explain what we've learned as an MGA and have identified as "best practices" that can put everyone in the trucking niche on the road to success.

Marketing to carriers

It's important to us to keep our current company contracts and, we hope, gain some new ones. We want to make a good impression on our carriers by demonstrating that we understand the pressures they face, and we consider it our responsibility to help them make a profit on the business we bring them.

Prior to the most recent hard market, there were as many as 80 carriers insuring at least some aspect of the trucking industry. Today, there are about 20. At the same time, one effect of deregulation in the industry is that, if anything, there are more trucking firms in business now than there were a few years ago.

This trend has important implications for the underwriters we work with. Not too long ago, the average casualty underwriter handling all lines in the trucking niche was looking after a $10 million book of business. Today, that number is somewhere between $20 million and $40 million. If tending to their current books were all they did, their jobs would be a nearly overwhelming. In addition, however, they also have to look at new business submissions-and they may quote $10 million to $15 million of new business on top of their renewals.

This market demand puts a great deal of stress on home-office underwriters-which gives us an opportunity to stand out in their eyes. We find out exactly what information they need and stick to their guidelines, doing our best to present information correctly on the first submission. They usually don't have to call us back for more data. This saves them time, which helps them stay afloat while trying to get to the next quote.

We expect the same approach from the agents we work with. MGAs sometimes joke about producers who casually say, "I need a million of coverage limits at your most competitive rate" for a client about whom they provide scant information. Agents shouldn't operate this way, but we consider it our fault if they do-it's our responsibility to demand more from them.

We give preferential treatment to producers who help us write business more efficiently. A good producer pre-qualifies an account before bringing it to us. This means not just determining whether the account "measures up," but also finding out what the account's current coverage is and what it will take to get that firm to move their business to us. Our best producers also survey the competition and let us know what other companies have been approached about an account, both by them and by other producers. We're grateful for this information, because it sometimes helps us decide whether we want to devote our resources to pursuing an account. If we were one of 15 competitors looking at it, we would need a good reason to believe we'd be the lucky ones picked to write the business.

Applying our knowledge

We consider ourselves to be not just as marketers but also underwriters. And we're not just underwriting our trucking clients. When we submit an account to a carrier, we're underwriting the producer who brought the account to us, as well as our own personnel. We're doing the work that helps our company decide whether to accept an account, and at what price.

We like our producers to attach good cover letters to their applications-something more than a sheet that says, "See attached." A good letter tells us how long the producer has known the prospect, whom the producer has dealt with, how long the firm has been in business, and other information that gives us a brief, helpful introduction to the account.

The detailed application we've developed helps us understand our risks and underwrite them properly. Since our carriers differ slightly in the information they require, our application asks more than we might need for any one insurer.

Our application begins with a checklist that tells our producers what documents we need, in addition to the completed application. Some items on that checklist-such as MVRs, financial statements and loss runs-help corroborate information on the application itself. By analyzing the information we receive, we might also discover something an account wasn't telling us-whether intentionally or not. Below are a few of the more important facts we look for:

? Mileage: Although the industry has traditionally rated trucking coverage on a per-unit basis, we believe mileage is the true exposure. We request mileage information for the current year and three prior years. The documentation we need includes fuel tax reports, broken down by state, and a projection of mileage for the coming policy period.
Mileage information can tell us a lot about a firm's practices. Looking at one application, we saw that a trucking company was logging 330,000 miles per year on its units. Discussing this with the firm, we learned that, using teams of drivers, the firm had its trucks on the road 23 1/2 hours a day. They were also in court over an accident in which a motorcyclist had lost control of his bike and slid under one of their trucks. Though the facts of this case indicated the trucker was not at fault, the jury heard that he was 20 hours over his weekly limit, and they returned a substantial judgment against him. We didn't offer to write that account, and looking over the mileage helped us make that decision.

? Loss runs: We request loss runs for the current year, as well as for three prior years, and we want loss amount valuations to have been updated within 90 days prior to submission. We request details on all losses over $25,000.

? Drivers: We need a list of all of a firm's drivers, and information on which are owner/operators and which are employees. We ask for MVRs and dates of hire for each driver, which can be useful for predicting future losses. The average annual driver turnover rate for a trucking firm is near 100%, which might mean that half the driver positions have turned over twice. Driver turn-over can be useful information about a trucking firm: A recently published study stated that drivers who have three or more jobs over a two-year period are more than twice as likely to be involved in a crash as other drivers.

? Commodities, receipts and agreements: These items tell us a great deal about our clients' exposures. We ask truckers to list the commodities they haul, the average and maximum value per load, and the percentage of loads that are at maximum value. They also need to indicate what percentage of their hauling is represented by each type of commodity-either by mileage or gross receipts. The receipts will indicate how much of their revenue comes from hauling goods as opposed to brokering (which represents a riskier exposure). Permanent leases, trip leases and hold-harmless agreements, to name just a few documents, also provide valuable information about a firm's exposures.

? Safety and maintenance: We ask for the names of employees responsible for safety and training programs, and we request copies of any safety and training program material. We also want to understand maintenance schedules and record keeping. In addition, we request copies of a firm's most recent state or federal compliance review report and the firm's current safety rating notice.

? Terminal exposures: The conditions at the terminals a firm uses can create big exposures. We want to know whether terminals are guarded, fenced in or lighted, as well as the average and maximum value of property at the dock.

? Financial statements: Like mileage information, financial statements can tell us more about a firm than just how well it's doing financially. For instance, we may learn that brokerage activity is a more important part of a firm's operations than it has told us. We ask for two prior years of statements, as well as an interim statement for the current year. We always ask for audited statements, and sometimes we actually get them. If nothing else, looking at a trucking firm's financial condition gives us a feel for how likely it will be able to pay its drivers, maintain its equipment and handle its outstanding obligations-including premiums and deductibles.

We supplement the information on the applications our producers give us with information from some widely used Web sites.

-CAB, the Central Analysis Bureau (www.cabfinancial.com), is a private financial rating service that has information on almost every trucking firm.

-The U.S. Department of Transportation maintains a Web site, www.safersys.org, for its Safety and Fitness Electronic Records System. At this site you can find much of the information DOT has on a trucking firm, such as its number of vehicles, information on its drivers and cargo, and the results of DOT inspections. The site includes information on units that have been placed out of service after inspections because of problems with the power units themselves, with commodities or with drivers, and compares the numbers with national averages. It discloses the number of DOT- reportable accidents and provides a history of the insurers furnishing coverage and the type(s) of authority held by a trucker.

-SafeStat (http://ai.volpe.dot.gov/ SafeStat/SafeStatMain.asp) is an automated, data-driven analysis system designed by the Federal Motor Carrier Safety Administration. It combines current and historical carrier-based safety performance information to measure the relative (peer-to-peer) safety fitness of interstate and intrastate motor carriers that transport hazardous materials. As this was written, FMCSA had removed some of its rating information from the Web site while it worked to improve the timeliness and accuracy of the data.

Tell the account's story

We start by sending a detailed three-page account risk summary that contains such details as contact information for the trucking firm; the coverages, limits and deductibles the firm wants; a history of the firm's exposures that includes ACV, mileage and revenue information on power units owned and used in the current year and prior three years; details on the commodities shipped; the firm's DOT safety rating; and a segmented loss history.

For losses greater than $25,000. we provide the same information that we request from our producers. For all losses, we indicate who insured the trucker at the time of the loss, how much premium the firm was paying and what the loss ratio was. We chart how many losses have occurred at different values, and we include annualized averages for all this information. We also indicate the rating factor that would have been needed to make a profit on the account.

We also include in the summary any additional information that doesn't fit into a statistical category but that a carrier may still find helpful. We might, for instance, include such comments as "Owner is former driver," "Second-generation family business, "Good screening process," or "Average driver has 15 years of experience." We might also provide details on the client's safety programs and incentives, driver recruiting and equipment. We have earned the trust of our carriers with this risk summary, and often it is all they need from us to make a decision.

Professionalize the presentation

When we develop a quote, we send the producer a proposal that includes the important details, including carrier(s), coverages, limits, a description of limitations or modifications, pricing, requirements for binding and producer commissions.

We also include information that will help producers present the proposals to their prospects or clients. Such information includes an accident-reporting kit, loss-control information and a description of the carrier. Providing producers what they need to clearly explain claim-filing procedures can help avoid delays in reporting claims. Such assistance not only helps producers demonstrate their competence, but also increases our chance of winning accounts. From our own experience and from talking with many MGAs, we have found it most effective for general agencies to issue policies themselves whenever possible. Although some insurers are reluctant to grant such authority, general agents can almost always issue policies faster (one to 10 working days) than can insurers' policy issuance departments, which are often overworked and understaffed. General agents usually do a better job of comparing the policies with proposals and binders to make sure there are no inconsistencies or errors.

Don't beat around the bush

On the many occasions we don't get a prospect's business, we immediately evaluate whether we would consider the account in the future. We look not only at the prospect we've just worked on, but also at the producer. We examine our results using agency analysis software we've developed. This helps us formulate strategies for business development with our producers. We're able to offer quick turnaround of quotes for our top-tier producers. We can also target producers with low closing ratios and work with them to determine if we can develop a better relationship or if we should save our resources for more profitable opportunities.

If we decide that we would be willing to give an account another proposal, our goal is to establish ourselves as "No. 2," or the back-up choice. Often the reason we don't get an account is because a competitor submits a price that seems too good to be true-and later, some of these quotes turn out to be just that. If we're in the standby position, we're ready to step in and help that account when it needs us. When an attractive account declines our proposal, we reply, "Thank you for the opportunity. We would still be interested in working with you in the future, and we're not going anywhere." We feel this provides a classy touch, and it works in our favor a number of times each year.

Renewals

We put as much care into renewing our accounts as we do into earning their business in the first place. We pull our files at the eight-month mark. This gives us time to look over an account and decide if we want to keep working with it, and still meet any 60- or 90-day requirement if we need to send a notice of nonrenewal.

We ask our carriers to keep us up-to-date throughout the policy period on paid or reserved losses greater than $25,000, so clients don't get surprised as we begin our review. We communicate with our carriers and producers throughout the policy period and seek to understand changes in an account and evaluate whether the trucking firm continues to be a good fit for the insurer and our programs. We also do our best to assess the competition. Once we understand all the factors, we can start underwriting an account.

Advice for agents

Providing thorough and complete information to your underwriters at the outset saves everyone an enormous amount of time. It also gets your submission to the top of the pile and will likely produce a quote where others fail. Offering a "lay of the land" view of the competition to the underwriter helps him or her determine how to approach an account. If this sounds like teamwork and cooperation, it is. Understanding what an underwriter needs to do a good job of evaluating and pricing an account must be a producer's primary objective. Communicating your knowledge of a risk to an underwriter demonstrates competence and confidence. Remember that the easiest word to speak in English is "no," and that an underwriter is forced to utter it when information is incomplete or confusing. In today's market, there are just too many good risks to pursue to spend time trying to breathe life into a dead submission.

It takes little additional time and effort to provide your underwriter the required material the first time, rather than sending in a generic application and later responding to follow-up requests. But that little difference makes all the difference to your underwriter and your chances of getting a winning proposal.

Ward Stein is president and co-owner of Greenwich Transportation Underwriters. GTU was established in 1981 and writes business in 40 states, operating as an MGA and focusing primarily on transportation insurance for truckers. Mr. Stein has a bachelor's degree in political science and English from Luther College. He served as a police officer in Cedar Falls, Iowa, for six years before entering the insurance industry. Mr. Stein has held positions with a number of trucking insurance companies, including Transport Insurance (Great American), Progressive, Associates Insurance Group, AI Transport (American International Group) and RLI.