In the past year and a half, insurance rates for car rental companies have skyrocketed, leaving many small operators befuddled and frustrated. Even rent-a-car companies with impressive loss runs and solid risk management programs have had to grapple with steep rate increases.
At the Car Rental Show last fall in Las Vegas, Mark Plousis of Philadelphia Insurance Companies addressed this troubling trend during a seminar titled, “The Future of Insurance.” For the past 13 years, Plousis has managed the underwriting and claims of rental, leasing and commercial fleets for Philadelphia Insurance Companies.
Several factors converged to trigger the drastic rate hikes, Plousis told show attendees. Among them: claims arising from the 9/11 attacks, fewer insurance carriers competing for car rental accounts, and excessive jury rewards in liability cases involving car rental companies. Nonetheless, operators still have available options to help minimize exposure and avert further premium hikes.
“The insurance industry is a cyclical industry,” Plousis says. “We had been in a 10-year soft market. You could go out, bid your business, and have four or five carriers give you a price. And the next year, you could go out and probably get a better price. That was the effect of a soft market.”
But the 9/11 terrorist attacks, coupled with the sagging economy and stock market decline, changed everything.
Causes of Hardening Insurance Market
In property and casualty claims, the 9/11 attacks cost the insurance industry $50 billion to $60 billion. As a result, fewer re-insurers are available or willing to help spread the risk for car rental accounts, Plousis says.
Moreover, the stock market no longer represents a reliable source of income for insurance companies. As a result, they’re taking a more conservative approach to underwriting accounts. There’s more pressure for this line of business to turn a profit.
Another major factor is insurance industry consolidation. Fewer carriers are competing for car rental accounts. Companies such as Reliance, Legion and Frontier no longer serve the car rental market.
“That means less competition, which means the price goes up,” Plousis says.