Many aspects of life changed in America on September 11, 2001. Not the least of those was insurance, the cost of which has risen considerably since, after more than a decade of steady drops. However, insurance premiums have been on the rise for the past several years, beginning even before the 9/11 terror attacks in 2001, according to Jim Bankson, senior vice president, sales and marketing, USI Rental Specialties, Irvine, Calif. Since that time the insurance market has hardened even more as a result of the declining stock market and low interest rates on bonds and other investments made by the insurance companies.
Because stocks and bonds are no longer the cash cows they once were in the plentiful '90s, insurance companies have turned to other strategies to remain profitable.
Most insurers have resorted to increasing premiums as a way to make up the difference.
Aba Daba Rentals & Sales, Sacramento, Calif., incurred a 30 percent increase in premium costs this year over 2002, according to its president, Dale Blackwell. To make up for the increased insurance rates, Aba Daba implemented a 10 percent rate increase.
Many insurance companies have under-reserved for future potential claims payouts and have taken a conservative approach to underwriting and exiting difficult industry groups such as rental equipment dealers. Insurers are becoming more specialized as a way to better control the level of risk they incur. For example, a lot of insurance companies have shied away from writing workers compensation policies. As a result, says Martin O'Brien, president, Pittsburgh, Pa.-based Allied Insurance Brokers, there are carriers who only handle workers compensation insurance policies. These same companies are decreasing their coverages in other ways, such as not offering auto insurance. O'Brien believes increased specialization is a trend that will continue.
The combination of these factors makes it more difficult for rental companies to find a good insurer. Do your homework when selecting an insurance company. Find out how long they have been in business and how long they have served the rental industry. Customers should consider every service an insurer has to offer them — not just cost.
“Consider what you're paying for and consider what's behind it,” says Bankson. “Tap into the resources that are available from your insurance company. Ask yourself what you are getting for your premium dollars.”
An insurance company should have someone on staff available to visit your business and speak directly to your employees about safety and best practices. It should also offer ideas and solutions to help minimize your losses and reduce claims. As a loss control measure, the company should offer to come out to your rental center to inspect the building, check the location of fire extinguishers, make sure chemicals are safely stored, designate where to put oily rags and make sure other flammables are safely put away. They will also examine your rental contract to ensure everything is covered. Keep in mind that an insurer who specializes in the rental industry will know of specific clauses necessary in the contract for equipment such as trailers and aerial lifts.
Some insurance agencies and carriers offer to run reports from the Department of Motor Vehicles on potential employees of the rental company at no charge with a sign-off from the prospective employee.
If an insurer regularly works with rental companies it will be better prepared to handle your claims when they arise. A 15-year veteran of serving the industry, Allied Insurance Brokers, for example, has claims specialists that handle rental claims specifically. Because they only work with these types of claims they immediately know who to go to in certain situations, including which attorneys, expert witnesses or local claim adjusters may be best.
“We aren't reinventing the wheel with what we do for the rental industry because we do everything on a regular, daily basis and with years of experience,” O'Brien says.
Concord, Calif.-based Jenkins/Athens Insurance Services has served the rental industry for 16 years and has full-time rental equipment claims specialists on staff dedicated to managing those claims specifically.
USI Rental Specialties, a company of managing agents, has been affiliated with The St. Paul Companies for 20 years. It recommends its clients get involved with a program like RenTrain, which actively promotes safety.
“RenTrain is an electronic publishing company specializing in providing safety, operation, maintenance and corollary information, specific to equipment typically found in a rental dealer's inventory,” explains Jim Ziegler, CEO. The service allows you to easily download operating instructions, which can help inform rental customers on how they can get hurt by the equipment as well as how to operate it safely. USI offers a discount on rates for participation in the RenTrain program.
USI also has a partnership with LoJack that allows its customers to buy the LoJack product at a reduced rate. It also recently gave away 500 free units to its policyholders. In addition, USI publishes a quarterly newsletter called Rental Risk Review, which identifies some of the most common causes of claims, such as attaching trailers, and highlights how to do it safely. The newsletter also reports the top 10 most common causes of claims, providing awareness to rental companies, which can then look closely at their fleet and take preventive measures to avoid claims in those areas.
Another offering is The St. Paul Academy, a free schedule of seminars scheduled around the country available to St. Paul policyholders. Though these seminars are not exclusively for rental companies they still offer pertinent information regarding loss control and other insurance issues relevant to businesses.
“Safety and prevention seem like they're going to cost money, but they will result in a better operation, better employees and a better bottom line,” says O'Brien. “You'll be a better risk to the insurance companies as well.
“Rental companies should always use the free service at www.ambest.com to get the financial rating status of their insurance companies. You want to make sure you're using an A-rated insurance company,” O'Brien adds.
When was the last time you reviewed your rental contracts? If you haven't done so in the past 12 months, then it's time to take another look. Ask your insurance company to review them and make any additions that may be necessary. Then have them examined by an attorney to ensure that all necessary wording is included and all your bases are covered prior to printing.
Make sure you have a “hold harmless indemnification clause” in place, which is simply an agreement that the lessee cannot hold your rental company responsible for a loss. Though the hold harmless clause won't always guarantee no liability by the rental company, it will limit liability significantly.
“It's very important to make sure that your hold harmless clause in your rental contract is up to date because the laws are changing all the time,” says Jeff McGeary, senior vice president of sales, Allied Insurance Brokers. “Have them reviewed yearly or any time you order new contracts from the printer. Your attorney should always be the gatekeeper.”
It's also a good idea to look to the industry associations, such as American Rental Association and Rental Industry Association, for guidance with contracts, says O'Brien. One of the key functions of an association is to be a resource for these types of issues and it should be used as such. Another strategy, he says, is to put right on the contract in black and white that “the purpose of the contract is to transfer liability to the lessee.” The contract should also clearly state that the lessee is responsible for the loss in the event of theft.
Most importantly, however, is to have a signed contract for every rental transaction — no exceptions. “It is surprising how many claims we see with no signed rental contract,” McGeary says. “The cheapest form of insurance is your rental contract.”
Educate, educate, educate
Before you can get a signed contract you must, by law, instruct the customer on the proper use of the equipment he or she is renting. A contractor who rents an aerial work platform probably uses it for his everyday business and is familiar with its use. A homeowner, however, may rent a lift to trim some trees in his backyard and have no background in its proper use. At the time of rental ask questions of the customer. What are they going to use the item for? Where are they taking it? How long is the job? What is his or her background with using similar equipment? The right questions asked will help the customer get the appropriate equipment for the application, avoiding accidents caused by inappropriate tools.
According to Tom Callahan, vice president of human resources and legal, Modern Group, Bristol, Pa., the rental company can potentially be held liable if it fails to warn the customer of potential dangers. Customers of Modern must sign a card at the time of rental that says they have been informed of the location of manuals and the proper use of a machine.
RenTrain's Ziegler recommends providing both printed and oral operating instructions and printed and oral safety instructions specific to the manufacturer's model at the time of every rental. This information can be obtained from a service such as RenTrain or from the manufacturer directly. Aba Daba's Blackwell, who recently signed up for the RenTrain service also suggests contacting vendors and manufacturers to ask for these materials as well as instructional videos that can be required viewing for customers prior to leaving the store with your rental equipment.
“Getting involved with programs like RenTrain is a good idea,” says Bankson. “This information helps inform customers on how they can get hurt by the equipment. Owners should also educate the customer on how to operate the equipment and then document that they did so. You can't take for granted that they know how to use it.”
Also be sure to carefully maintain the decals and warning labels on all equipment. If a decal is beginning to wear off or is no longer legible, replace it immediately. Failure to have your fleet properly tagged increases your susceptibility to loss.
“The rental center should demonstrate the use of the equipment to the customer and make sure each piece of equipment has proper warnings stickers that are easily readable,” says Karin Conklin, account executive, Jenkins/Athens Insurance Services.
Reducing claims 101
There are a myriad of ways to cut your insurance costs and reduce the number of claims you file annually. Finding a good partner that will help you determine a solution is step one. Prevention is a close second.
Believe it or not good old-fashioned fender benders are the most frequent type of insurance claims filed by rental companies. The good news is that these accidents are some of the easiest to avoid. Before you hire an employee get signed permission to run a check with the DMV to get a copy of his or her driving record. Set a standard and make it a practice to only hire safe drivers.
Provide and require a defensive driving course for all employees who will be behind the wheel of a company vehicle. Many drivers need to learn the difference between driving their personal vehicle and the trucks and trailers they haul on the job. A truck with a trailer and heavy equipment attached to it has a greatly reduced stopping capacity than a car or small truck. Drivers should also fill out a checklist at the end of each day to indicate if any repairs are needed to the company vehicle. Anything in question should be marked for repair if it isn't working properly.
After they've completed drivers' training hold your drivers accountable. According to David Griffith, CEO of Modern Group, his company cut $60,000 out of its premiums last year simply by placing “How am I driving?” stickers on all company vehicles. Doing so also helped avoid a major road rage incident. A report of poor driving by an employee resulted in the discovery of a deeper problem, and upon further investigation, that individual was removed from a driving for the company.
Then continue to monitor drivers on an annual basis and take disciplinary action with unsafe drivers. Don't just make rules, stand behind them. Driving accidents can add up to some of the biggest losses. There can be third party losses, workers comp claims if the driver is injured and damages to the truck and other equipment.
In addition, consider instituting a drug-free workplace. Require a pre-employment physical and background check, and then do random drug and alcohol testing of all employees regularly. According to McGeary, some states offer discounts on workers compensation insurance if you have a certified drug-free workplace. Plus, advertising that you are a drug-free company will discourage users from even applying for a job.
Educating employees about safety off the road and in the rental yard is also critical to keeping costs and claims in check. Modern Group, which has seven full-time trainers on staff, offers sophisticated operator training programs to help reduce product liability claims.
Allied's O'Brien recommends having weekly meetings with employees to discuss a variety of safety issues. Focus on one or two points of safety per meeting. Keep a meeting log to record the topics covered and attendees, then follow-up to ensure that safety tips are in practice. Use the services your insurance companies and agents offer in regard to safety training and schedule visits for them to come out and talk to your employees directly. To get the best results the owner of the rental company must make safety a big issue with employees.
“The money you spend on loss prevention you will get back at least five-fold,” says McGeary.
Beyond safety and training, there are other measures that can be taken to reduce claims, particularly in regard to healthcare. Modern Group worked closely with its partners to develop a smoke enders program and a weight watchers program. The company also organizes health fairs and provides flu shots to employees annually. “These are all things our partners help design and create,” says Griffith.
Aba Daba's Blackwell once had a chiropractor come in to educate employees on how to lift objects without injuring themselves. “Whether you were for or against chiropractors before that session, you walked away with useful information,” Blackwell says.
United Rentals takes a distinctive approach to safety, coupling it directly with employee compensation. In 2003 United retained more risk as a company but raised the benchmark on safety and loss control, according to vice president of risk services, Grace Crickette. Now most employees have compensation tied to safety, including managers who have bonuses at stake. Orientation for new managers now includes an entire day of safety and risk management programs. There is also more frequent communication from the executives to the branches about safety concerns.
The company also formalized its safety officer program by increasing the scope of the job and introduced a program that encourages employees to submit safety tips. Employees' whose tips are chosen receive rewards.
There is a way to escape the rising costs of traditional insurance companies. Self-insuring is an excellent way to avoid rising premiums. To control costs Greenwich, Conn.-based United Rentals takes a very proactive approach to its insurance structure by managing its own claims. Doing so gives the company more control over claims, Crickette says. From United's perspective self-insuring is a way to retain the profit an insurer would make off its premiums. “If you can retain the right amount of risk and manage it yourself you're always ultimately better off,” says Crickette.
The company has a self-funded health plan and is self-insured with its other insurance. To control costs, Crickette meets with more than 40 underwriters in person annually to market the UR account. With them she reviews United claims over the past year, losses that have occurred and the resolution of these losses.
“We do a good job of providing a safe workplace and a good job managing our losses,” says Crickette. “If you do these two things the underwriters are comfortable and they will reward you.”
15 STEPS TO LOWER COSTS
- Launch a safety and loss control program supported by senior management.
- Tie compensation directly to safety initiatives.
- Organize regular meetings to discuss safety issues.
- Provide written and oral operating instructions to all customers — every time.
- Ask your insurance company to inspect your business.
- Invite manufacturers to provide training on new equipment.
- Run a DMV check prior to employment and only hire safe drivers.
- Provide and require a defensive driving program.
- Continue to monitor drivers annually and take disciplinary action with unsafe drivers.
- Institute a drug-free workplace and do random drug and alcohol testing.
- Require pre-employment physicals.
- Ask a chiropractor to discuss safe lifting practices with employees.
- Have an attorney review your contracts annually.
- Retain the right amount of risk.
- Self administer your claims and have support staff in house to manage them.
IT'S CHEAPER TO CO-PAY
No matter the industry, the escalating price of health care is making an impact. Adopting a self-funded health coverage plan for your employees is one way to manage the rising costs of health care.
Greenwich, Conn.-based United Rentals and Bristol, Pa.-based Modern Group both employ self-funded health insurance plans. Though year over year increases are unavoidable, both companies realize substantial savings based on their self-funded status. “The question is: How much can you slow it [rising health care costs] down through good plan design and a good partnership,” says Grace Crickette, vice president of risk services.
David Griffith, Modern's CEO, echoes her comment, “By managing it, it has still gone up, but not as much as it could have. Good partners are key. General awareness is key.”
United partners with Blue Cross of California, which Crickette says “has some of the best negotiated contract prices in the country.” As a result, both United and its employees realize savings. For example, if a doctor has a contract with Blue Cross of California, then they will have a negotiated price for most health care services. If a service typically costs $1,000, and the negotiated price through Blue Cross is $600, then the prevailing cost is $600. If United agrees to pay 90 percent and it's employee pays 10 percent then they both end up paying their respective percentage of the lower negotiated fee.
Crickette advises looking for a company that can service your population of employees. United has employees in 48 states and Blue Cross of California is able to meet that need. “You also want to check to make sure that your provider has good contract agreements with the medical community — that they have good doctors and good health care facilities in participation,” says Crickette. “You're looking for good market penetration.”
Once you decide to become self-funded designing the plan should be done carefully to meet your company's needs. What percentage of health care costs will you cover? Are there any areas that you won't cover — plastic surgery, for example?
There are, however, many benefits to deciding on self-funded health coverage. First, the self-funded plan is seamless to employees. Second, if a participant doesn't go to the doctor, then you don't pay anything, as opposed to paying a premium on each of your participants regardless of whether they receive any health care in a given year. To further control risk with a self-funded plan, Crickette recommends purchasing stop-loss insurance, which puts a cap on what you have to pay in a given year. If someone under your plan has a catastrophic illness, such as a car accident or cancer, then the stop-loss insurance will kick in at a certain point.
The staggering cost of prescription drugs is also a major concern. According to Griffith, Modern Group had a $100,000 increase in drug claims alone last year. To help manage these costs, the company educates and encourages employees to purchase prescription drugs via mail order whenever possible. For those who take a maintenance prescription regularly, a 90-day supply is cheaper by mail than a 30-day supply from the pharmacy, Griffith says.