A large cost factor for car rental operators is their insurance coverage. Yet as important as insurance is to both the RAC pocketbook and the operation of a successful business, many times insuring vehicles falls behind fleet, employees and general operation costs in terms of import. But Philadelphia Insurance Companies’ Mark Plousis urged owners and managers to be conscientious about insurance accounts, as well.

On Wednesday, April 5, at the 2006 Car Rental Show in Las Vegas, Plousis, assistant vice president of commercial underwriting for the insurance provider, addressed a group about what needs to be done to maximize the benefits of a solid insurance program.

“You want to be proactive, and you want to be an educated consumer,” Plousis said. “I know these are all buzzwords, but it’s very important for you to stay on top of (insurance).”

Philadelphia Insurance has been writing rental car insurance for about 40 years, and Plousis himself has about 20 years in the business – 16 of those at Philadelphia. The company is one of just a few that specializes in rental car insurance, which means maintaining an attractive portfolio is all the more necessary to stay in the good graces of that segment of the insurance business. To do that, Plousis suggested a list of priorities that will enhance a rental company’s coverage and impress its carrier. So, when the need comes for a helping hand, your insurance provider is more likely to extend it.

The Underwriter’s Role
The underwriter serves three primary functions when dealing with a new customer. First, they decide for whom the company will write. Basically, they give the initial “yes” or “no.” If the underwriter agrees to write the loan, then they determine what the price is going to be for the account. Thirdly, they monitor the account.

At the time of renewal, Plousis said, the underwriter will decide if they’re going to stay on the account, or see if the account needs some rehabilitation. And this relationship with the underwriter is essential for the rental company. Though there are just a few RAC insurance providers, the way in which the accounts are treated can vary.

“(When we talk about the renewal) We always find out that there’s someone in another part of the country who is doing some things a little differently,” Plousis said.

He urged how important a source of revenue insurance can be. In that regard, preparing for a renewal is not unlike arranging for fleet financing. Just as you approach a bank with a polished portfolio when seeking a line of credit, you should be keeping good records using current information to present an underwriter. That’s because underwriters are essentially looking for the same thing as a banker, according to Plousis.

The first thing an underwriter is looking for is a complete submission. In the insurance world, a submission is an argument that is going to be presented for business. When an underwriter looks at it, they want it to be concise, but they want it to be complete, Plousis said.

“Is all of the information there? Does it look good or is it written in crayon?” he asked. “You want it to look sharp – the same way you’d fill out a loan application.”

If a submission is clean, concise and complete, then it will already have a favorable position – even is there have been some bad losses and a rundown fleet. Or, as Plousis put it, “At least dress the pig up for the ball.”

Keep an Updated Loss History
One of the most important aspects of the submission process – of the renewal process, in general – is your loss history. You carry your loss history with you wherever you go. Even when you change carriers, you bring your loss history with you. You shouldn’t just keep it with you, but it should be well managed, too.

“Underwriters don’t want to see you go on loss runs that are six months old or a year old,” Plousis advised. “They want current losses. Good accounts that have a favorable loss history will receive favorable pricing.”

Particularly in the car rental industry, there are a lot of losses. Some industries don’t have to deal with losses like automobiles do, but that’s understood - companies that insure car rental are aware of that. That said, an old loss history is going to raise some eyebrows at the insurance carrier that you want to consider your account.

Current company loss runs are important to keep, but too often, car rental companies don’t ask for them. Some agencies provide their own loss runs, some brokers provide their own loss runs, but either way, you should get actual company loss runs.

“Remember, you own the loss runs. They’re your loss runs,” Plousis said. “They’re not owned by your broker. They’re not owned by your agent. They’re owned by you. You’re entitled to them; you should get them.”

Then why does it seem like it takes so long to get them? Well, it shouldn’t. You should have access to your loss runs when you ask for them. Plousis said it should only take a few minutes – “it’s not a big deal.” So if you’re not getting them quickly, then some red flags should pop up on your end.

In fact, insurance providers want their accounts to know about their loss runs. The next time your policy is up for renewal, you’ll need them. If you’re not getting your loss runs when you ask for them, Plousis suggested contacting the insurance department. The claims workers will act quickly. At Philadelphia, for instance, any complaint to the insurance department goes to the CEO’s desk.

Another question to consider is the type of customer that your business caters to. If you operate primarily with cash rentals, that is important information for an underwriter. “A cash rental is a dangerous rental,” Plousis said. “Some people make a lot of money off of that rental, but from an underwriter’s standpoint, that’s something that has to be looked at.”

Accommodating the insurance replacement market is another story, though. A business that operates with insurance replacement rentals is an appealing account to an underwriter because they can shift the coverage over to the renter. They’re able to do that because it’s a substitute vehicle.

Risky Business
One of the reasons there are so few insurance companies in this industry is the risk involved. Because it’s such a dangerous risk to write, not every underwriter wants to take their chances in the auto rental sector.

The various insurance agencies are rated by outside agencies such as A.M. Best. And just as they rate the insurance provider, they also rate the risk applied to different businesses. Risk is rated on a scale of one to 10. A paper store might be rated something near the bottom of the scale – maybe a one. Due the number of losses in auto rental, though, the risk is rated at a 10. “And if the scale went higher, the risk would be higher,” Plousis said.

So, he added, it’s not like personal auto policies where a driver can get quotes from a number of different carriers before making their choice. That makes it all the more imperative in keeping the insurance side of business organized.

“It’s not an unlimited market place,” Plousis said. “So, it’s important to manage this and protect yourself. It’s a dangerous business, and we have a lot of losses.”

As a rental company, part of doing this means maintaining a good reputation. You want to be a good risk to write in the eyes of an underwriter. Because they are “going to put you under a microscope.”

If you have a bad loss history, part of the rehabilitation of your account is taking on more risk. As far as a carrier is concerned, that’s a good thing, because they feel you’ll be more cautious with the rental.

Preparing for a Quote
When preparing for a quote, there are a number of different ways an insurance company can be dealt with. Every insurance company is going to provide an application. After that, you can deal with the company directly. There are also brokers who dedicate their business to placing coverage for car rental companies, or local agents who have access to certain carriers.

When filling out an application, Plousis said it’s extremely important to have an updated rental agreement attached. Part of the reason is because laws change constantly.

Last year, Congress passed a bill that ridded the industry of unlimited vicarious liability. In the bill, popularly called the “highway bill,” a section known as the Graves Amendment made rental and leasing companies, as titleholders of the vehicle, exempt from liability in the event of an accident. Though, it should be noted, that there are still some loopholes, which is why only “unlimited” vicarious liability was extinguished.

“That was a big issue – a weight holding down our industry in areas like New York and Washington, D.C.,” Plousis said. “Well that’s gone now. So it’s important to have an updated rental agreement. This is the contract that you’re sending out with your customer. It’s the most important document in your business.”

An updated rental agreement could mean the difference between owing money or not. It can clear an operator of responsibility when a claim comes in. If you change the wording of your rental agreement, make sure to keep past or old copies. Because, Plousis reminded, claims don’t always come in immediately. Depending on the statute of limitations in the area, some claims can be filed even six years after the fact. “You want to make sure you can pull that copy that’s prevalent at the date of loss,” he said. The same is true for old insurance policies, as well. Keep old copies of them. Even though a car is returned and appears to be damage free, a claim could be filed years later.

If there is something important that a rental customer should know, then it’s a good idea to have them initial that area of the contract. Having the initials there can carry a lot of weight in court because the customer forgoes their ability to plead ignorance. Some car rental companies have limitations that can’t necessarily be held up in court. But if a customer initials that portion of the agreement, it might prevent them from making that mistake while the vehicle is in use.

In the same vein, keeping a record of repairs is essential in transferring responsibility.

“Everyone says, ‘I didn’t rear-end the guy because I wasn’t paying attention; I rear-ended the guy because the brakes didn’t work, or the steering was off,’” Plousis said. “But the records show that you sent (the car) out clean, and everything was fine.”

Simply put, keeping repair records mean better fleet management, which has a direct link to profit.

Making Money Count
Though most companies, auto rental or otherwise, don’t like to share revenue information externally, Plousis said that revenue is an indication of how an underwriter will write the account, if at all.

“A lot of people don’t like to give this up, but statistics prove that businesses that are doing well usually don’t burn down,” he added. Businesses that are having financial problems, on the other hand, are typically high risk. Financial information needs to be presented so that the carrier knows that you’re a risk that’s viable, that’s successful and that’s going to be around in the future.

Even if a poor financial resume doesn’t necessarily mean an entire business is at stake, it could give clues how it is managed. Companies that aren’t doing so well might lose cars, have vehicles that are involved in a lot of accidents or reduce their counter procedures to get a quick cash return.

Make It Work For You
Thinking about insurance coverage is like thinking about your customers. It’s not something that you do once a year; it’s something that should be done constantly. Think about your losses, manage them, factor in revenue and training programs for counter representatives. The lowest ranking people in this industry are the most important because they are counted on to run the proper procedures.

“Empower your counter reps. Make them important,” Plousis said. “You’re preaching it — are they practicing it?”

The same way you manage your fleet, your finances or even your employees, he said, you should be managing your insurance coverage. Make brokers and agents work for you. Just like a rental operator, people in the insurance business are trying to make money, looking for good risks to write.

“You need to have good, proactive management. Be an educated consumer, and you’ll be prepared when it comes time to do battle with the insurance company,” Plousis said. “You need insurance. It’s a necessary evil. So make it work for you.”