Insurance Post

Back on solid ground

The minibus and private hire markets have changed significantly in recent years, with new legislation affecting risk profiles while rates remain under sustained pressure. But this sector now appears headed for some degree of stability, discovers Ralph Savage

Brokers have historically viewed the minibus and private hire markets as closed shops presided over by specialists. But falling rates in the last few years have encouraged competition, and intermediaries consider both areas to be reasonably profitable for insurers who understand the market. John Hooper, managing director at Coversure, says that a typical group of minibus customer is difficult to pigeonhole: "Obviously, rates are set according to risk. There is a range of potential profiles, such as one individual owning a minibus for hire, all the way to schools, churches or charities. Rates are increasing slightly, but not quite as much as fleet."

Liverpool-based Wrightsure is a specialist independent broker in the minibus sector, and managing director Phil Rimmer confirms rates are on their way up. "The minibus insurance market is dominated by three major insurers - QBE, Norwich Union and Equity Red Star. The clientele will range from the large family wanting a vehicle for social and domestic purposes, schools and groups, or community transport operators, right through to a private hire operator. We've seen a couple of new entrants try to establish themselves in the minibus market over the last few years and this has ultimately pushed rates down. How successful they have been only they can comment, but we take pride in the fact our retention rate during the soft market has been good. One of the key things that impacted rates was NU's sale of (subsidiary) Minibus Plus to QBE, which left NU with the task of later winning back all that business."

As for rate hardening, he comments: "We are now seeing some within the sector, and I hope for maybe 5% over 2009. But this has come only after significant reductions in the past three years as we reached the bottom of the cycle."

Mark Prowting, head of transport at broker Heath Lambert, explains how the taxi and private hire section of the market has often been viewed in a poor light because of its claims experience. "The firms to be punished first will be those with poor claims experience. If you are a case that gets remarketed every year, insurers will ask 'if I get this one in 2009, will I lose it in 2010?' Firms should be careful that they don't get a reputation for this but, likewise, brokers are there to protect the client's best interests through giving the right advice. We should be professional enough to talk it through with the client and work with them to do something to try and drive down their claims costs."

Start up broker Ravenhall has a small but growing taxi account, and director Neil Grimshaw says the "inertia of increases" is one of many market characteristics at present, but adds that some underwriters are still willing to put a deal on the table. "Most insurers would like to obtain an increase, but they'd rather retain existing business. While this environment exists, the good old-fashioned broking exercise is the best way of limiting those increases as best we can."

Eye on the ball

He stresses the need to keep an eye on everything: "As a small broker, most of our business is new, although we have a book that is maturing. We must continue to do what we did to make us successful in the first place - we can't ignore a renewal and just send it out in the post and hope it renews. We must consider the markets that are available and whether there is anything we can do about it."

As with a lot of specialist areas in a soft market, underwriters and brokers widen their appetite and traditional specialist areas become more mainstream, as quotations are easier to obtain. Richard Nicholson, marketing director at Romero Insurance Brokers, says this landscape could be changing: "Specialist brokers always remain at the forefront of the sector, but new players see opportunities to get a foot in.

"When market capacity retracts, it concentrates back towards the specialist broker and insurers that understand the risks. Non-specialists will exit the market with the capacity they arrived on the back of, while specialists will live or die on the back of capacity and their ability to understand and place risks using their depth of knowledge as their specialty. In a hard market, you see who the specialists really are."

Mr Grimshaw believes that at this point in the cycle there is real room for brokers to add value. "There are fewer brokers than there were three years ago and as a result of consolidation a gap has been left for smaller brokers to step in and provide a good level of service. I don't think good rates are mutually exclusive now to the specialist brokers."

One example of an area in which the specialist comes to the fore is the huge range of endorsements that can be required by minibus clients. Mr Rimmer explains that policies reflecting the wide usage of the vehicles have been developed. "Policies for the charity and voluntary sector will offer a driving restriction of up to 70 years of age, and even then consideration will be given to older drivers; while cover for mobility aids and specialist equipment isn't automatically included, but if this forms an integral part of the vehicle then insurers will be accommodating."

"Specialist brokers have been subject to much greater competition but without a doubt will now start coming to the fore," adds Mr Prowting. "Deals are still available but it's the ones who understand the business and are able to sell that to the market by differentiation who will succeed. Private hire is viewed as an unpopular risk and, therefore, if you go to market without a broker that understands your profile, the treatment will remain the same."

Licensing legislation

As has been suggested, private hire has had some difficulty in shaking off its image for having a volatile claims history. One of the concerns among brokers now is that during times of economic recession, taxi firms and private hire operators may abandon good risk management and driver screening in favour of less experienced drivers to save on costs. Mr Hooper says that since the introduction of mandatory licensing for minicab drivers in London back in 2004 the cycle has smoothed a little. "This is something we have to be concerned about, but the entry level for drivers now means you have to be licensed and the vehicle has to be tested - whereas five or six years ago this simply wasn't the case, particularly in London.

"The mandatory licensing of private hire is good for the industry and good for underwriters," he continues. "You are writing a risk based on real exposures rather than a guess based on taking a look at the cab's office. Claims experience is also slightly better as a result of licensing because it has removed the problems of unlicensed minicab drivers working weekends in vehicles that shouldn't really be on the road."

The licensing picture for minibus brokers is slightly more complex, again giving the specialist broker an edge as Mr Rimmer explains. "Anything up to nine seats - be they minibuses or MPVs - fall under the local council's taxi division if they are used for public or private hire. Once you get beyond that, it falls into the remit of the Ministry of Transport. You have also got the community transport sector that works on a Section 19 permit, giving them certain opt-outs in terms of driving licences and who can use the vehicle.

Broker's imperative

"You need to ensure your advisers are highly trained within this sector," continues Mr Rimmer. "Not only are you seeking an appropriate policy to meet the client's needs, you also have to establish that they are actually entitled to drive this size of vehicle. This is not just from a driving licence perspective but whether they need the appropriate operators' licence issued by the Ministry of Transport."

Mr Grimshaw adds that the broker's imperative now is to emphasise that any cut-back on risk management represents a false economy. "Risk management doesn't have to be expensive although it can be if you seek the services of some professional providers. There are many things customers can do that are purely administrative or cost-neutral to effectively improve their claims histories and, therefore, their premiums.

"Clients could spend money on tracking systems, for example, but most taxi firms are using these simply to improve the efficiency of their business. Something as simple as providing a driver handbook or at least a claim form in the glove box is a risk management factor that can prevent claims occurring or, if they do, they can be properly subrogated and dealt with effectively. We have had many circumstances with our customers where bumps may happen in the early hours and, without a standard process for dealing with them, the client has no way to risk manage them."

Despite his suggestion that taxi fleets invariably have tracking systems to increase their operational efficiency, Mr Grimshaw is sceptical about the cost-benefit of expanding this into the realms of telematics. "On fleets with 20 to 50 vehicles, sticking a telematics system into the cars isn't going to stop accidents - it'll just tell you where, when and at what speed they occur. Fundamentally, the only way you can impact on premiums long term is by demonstrating through the claims experience that the systems in place are working.

"You may have a fleet with 100 vehicles all with telematics systems, gathering huge amounts of information, but the claims experience doesn't necessarily change. It is important to instil a positive attitude to changing driving habits across an organisation; this doesn't have to cost anything."

Claims trends

Part of that cultural education - according to one expert at the opposite end of the insurance supply chain - is to make commercial vehicle clients fully aware of their vulnerabilities. While brokers have applauded licensing rules for their impact on driver standards, Paul Bermingham, vice president of global markets at Crawford & Company, says the recession will undoubtedly result in more uninsured drivers, many of whom will be inexperienced. "The number of overall claims may not increase, but the cost to the industry certainly will. Additionally, a recession will bring an increase in exaggerated and fraudulent claims and there are already signs of this in the motor insurance industry. A developing trend is in relation to organised networks colluding to arrange and profit from staged accidents with innocent fleet drivers," he says.

Mr Prowting acknowledges this, saying that working openly and transparently with an emphasis on mitigating risk is the only way forward - otherwise the sector's fabled volatile claims history could make a return. "People are spending less money and revenues are down, so the obvious place to cut back would be on risk management - but this would be wrong in a hard market. Insurers will be looking for operators that are prepared to work with them rather than just sitting back and saying 'well, we are insured, it doesn't matter'.

"I can't stress enough the importance of the tripartite arrangement between client, broker and insurer. Insurers don't want losses and then have to seek higher premiums to try and recover."

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