Thanks to an improved risk profile, underwriters are regaining confidence in the bus and coach sector. Kirstie Redford looks at the various innovations being introduced by both sides to improve safety and reduce claims
The perception of the bus and coach sector is changing. More insurers have been making encouraging noises about dipping their toes into the market and Norwich Union's return last November, after a five-year break, illustrates a new confidence being felt in the equation of risk versus return.
Market commentators say this optimism is the result of much hard graft by the industry to improve the risk profile of bus and coach business, with many pointing to a heightened focus on safety measures and a push to weed out spurious claims.
Mike George, transport sector leader at broker Willis, says this adds up to a more attractive market. "In recent years there has been an improved perception of the way bus and coach companies manage their risk. Much of this perception is real - the competitive nature of the insurance market has forced the industry to focus on the significant cost of risk. Many companies now employ professional risk management personnel and consultants in addition to specialist loss management personnel," he says.
NU's head of motor underwriting, Kevin Edwards, is the first to agree that improved risk management means underwriters are viewing the market in a more favourable light. He confirms this has prompted NU's re-entry, adding that the insurer's own focus on risk management aims to support "a long-term, stable approach" to underwriting.
Concerted efforts from bus and coach operators across the market to introduce new initiatives aimed at reducing claims have not gone unnoticed. And Mark Prowting, director of Heath Lambert's transportation division, adds that the most striking element is that it is not just the big operators but even the two-vehicle operators that are being active. "Risk management is no longer seen as a strange beast - firms are waking up to the fact that it's just common sense," he says.
So what specific initiatives are operators introducing to improve safety? Driver training has undoubtedly become a top priority for most operators. Cutting corners is no longer an option and most operators are now outsourcing training to specialist firms or providing intensive training courses internally.
For example, virtual software exists to instruct drivers on prescribed routes, so they can get used to potential dangers before actually taking to the road. "For coach drivers, longer routes can also be filmed so they can be alerted to hazards," says Mr Prowting.
A greater number of operators are now installing software that monitors how staff drive, measuring factors such as the speed at which they approach roundabouts, enabling drivers to be pulled up over bad and potentially risky habits.
Matt Crane, portfolio director at QBE subsidiary Ensign, says this 'black box' technology is also helping to combat fraudulent claims. "If this type of technology is installed, insurers can now tell if a vehicle was being driven erratically when an accident occurred," he explains.
In addition, most insurers now have their own risk management teams that go on site to check that appropriate training is being given and that vehicle maintenance is being upheld. "Over the last five years vehicle maintenance checks have become the norm, whereas it used to be insisted on by only a handful of insurers," says Mr Crane.
External factors are also helping to focus attention on safety, with new European Union legislation set to tighten training standards. A new qualification for bus and coach drivers, called the Driver Certificate of Professional Competence, will be enforced across all EU member states from 10 September 2008.
This means that holding a vocational driving license will no longer be sufficient - drivers will also have to take part in 35 hours of training every five years to maintain their CPC. In addition, the legislation introduces a new initial qualification process that new drivers must complete before they can drive professionally.
The new licence aims to produce safer drivers to help reduce road casualties. John Miller, chairman of the claims and insurance group at the Confederation of Passenger Transport, has high hopes that the CPC will achieve this. "The claims record in the sector has always been very good, but it can always be improved upon. Quality comes with proper training and there are massive gains to be had with the CPC - it will be fundamental to future training and driving skill standards," he says.
When it comes to beating fraudsters, the use of national database and information-sharing to highlight serial claimants is gaining popularity and more third-party companies are now providing tools to the bus and coach industry to help detect fraudulent claims.
One such firm is One Liability Services, part of Hill Dickenson solicitors. Nerys Parry, partner and head of transport at the firm, says that it helps clients make informed decisions by providing intelligence-led evidence. "We assist clients beyond their instincts, and identify trends across businesses - we have 28 bus and coach clients, so have built up a lot of data," she says.
Encouragingly, Ms Parry says that fraudulent claims in this sector are not on the rise. "This is because insurers are now more alert to the risks. Solicitors and insurers are joining forces and setting up committees to deal with the problem. CCTV is also making a real difference. Passengers and third-parties in accidents are realising that operators now have this capability, which is making them think twice about claiming," she says.
Systems such as OLS's Netfoil are also helping to manage fraud. Netfoil holds data relating to thousands of unsuccessful claim 'attempts' and cross-references claims data looking for matches against known fraudsters and fraud indicators, helping insurers identify high-risk claims. "This technology is also reducing claims frequency as people are more hesitant in bringing about claims," says Ms Parry.
As mentioned above, extensive use of CCTV is making waves. The installation of both inward and outward-facing cameras is helping to gather evidence of everything from 'slips and trips' to cars pulling out in front of coaches and buses. "The use of cameras has become widespread and is proving very useful in defending claims," says Mr Prowting.
In fact, CCTV has already led to a number of well publicised prosecutions. For example, in January, Arriva hit the headlines after winning a fraud case using CCTV evidence (see box above).
Mr George says that such publicity is helping to fight fraud. "This publicity is critical since it makes fraudulent claimants less likely to pursue claims in the first place," he says.
Proactive handling of third-party claims and medical rehabilitation is also having an impact. "Many companies now deploy investigators to validate claimants who are off on long-term sick leave," explains Mr George.
There is speculation that these improvements in risk management - and thus the loss ratio - will prompt more insurers to enter the bus and coach market. However, Mr Crane warns that only long-term contenders should bother making a play for business. "Insurers that are only in the market for the short-term send the wrong message to both the insured and the broker community. If standards are to improve further, the market needs stability - not boom and bust," he says.
Mr George agrees, adding that his fellow brokers should be on their guard if new players begin to emerge. "In the past we've witnessed situations where underwriters have entered the market only to exit at the first sign of hardening. Operators need reciprocal commitments and should never seek short-term gains. This filter process should be a critical part of the broker's role," he says.
Increased market capacity is also leading to heightened competition and, according to Mr George, some highly aggressive quotations where business is perceived to be attractive. "Such aggressive rating cannot be sustainable beyond the medium term, and brokers have an important role in working closely with both policyholders and insurers to avoid boom-and-bust-type pricing," he says.
David Hinton, deputy managing director at specialist broker Belmont International, reports that there are no signs of rate hardening in the sector, while Mr Prowting comments that "deals are still being done".
However, Mr Crane says that, although it is a hard call to make, in his view "rates have to move forward".
One potential catalyst for rate hardening in the coach sector could be the tragic National Express crash in January this year (Post, 11 January, p1). Although a knee-jerk reaction is unlikely, Mr George predicts that reinsurers could seek to recoup losses in 2008. Mr Prowting agrees that some upward movement is possible, but it all depends on the outcome of the investigation.
The National Express crash could also fuel debate over the wearing of seatbelts. Mr Prowting explains that although many operators now install them, not all insist passengers wear them. "Now there are questions on how to enforced this," he says.
Ensign was the insurer of the coach involved in the crash, and Mr Crane says the event underlines the importance of effective crisis management. "Within hours we had set up an emergency line and have since worked closely with those affected to deliver what they need - whether it is an interim payment, occupational therapy or help with post-traumatic stress. I think we've done a sound job in tragic circumstances - this is the core of what the market's about."
Mr Hinton adds that the crash demonstrates the catastrophe exposure in the sector. "This also shows the need for insurers to have a significant market share to maintain presence," he says.
Large deductibles are commonplace in the bus sector because claims tend to be frequent but small compared to the coach sector. In the latter, although claims are less frequent they can be more serious, as the National Express incident illustrates.
If rates do harden over the next couple of years, Mr Prowting says there is a possibility coach operators could look to self-insure to bring premiums down, although he adds that this is unlikely.
Mr George adds that the only sure bet for the sector going forward is an increased focus on risk management, which could in turn encourage more self-insurance. "One size does not fit all. In many situations, however, considered self-insurance combined with effective risk and loss management can significantly reduce cost," he says.
However, NU seems determined to use risk management more effectively to ensure that the market for traditional insurance contracts remains in tact. "We plan to lead the way in technological advances," says Mr Edwards. "There is plenty of scope for the future development of a unique approach to managing operators' risks - without the expense and risk of self-insurance."
Just what this 'unique approach' will entail remains under wraps for now, but suggests that an eventful and hopefully innovative year lies ahead for the market.
RISK MANAGEMENT INTERVENTION
QBE's intervention with 'Bus Company C' involved a review of all its driver accidents and the root causes. This review revealed that a single driver had been involved with 20 third-party accidents - a finding that posed the question of whether a single driver could really have so many accidents without any part of blame or causation.
The insurer's intervention included conducting interviews with and retraining the driver. QBE reports that this has led to a period of more than two years where the driver has had no further accidents.
In January this year Arriva successfully prosecuted a woman who made a false accident claim against the firm using CCTV evidence (Post, 15 February, p10). Annessa Naser said she had suffered shock, as well as injuries to her back and neck, after being on board an Arriva bus in Liverpool's city centre when it was involved in a minor collision.
However, CCTV cameras on the bus proved that she was actually queuing to get on when the incident happened. Ms Naser pleaded guilty at Liverpool Magistrates Court to trying to obtain property by deception.
Tom Balshaw, Arriva North West operations director, commented at the time: "I hope this will act as a warning to others who may consider making false claims. These people are increasing insurance premiums not just for Arriva but also fellow passengers."
Arriva has invested more than £10m in new buses over the past 12 months on Merseyside, which all have high-tech CCTV systems in place.
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