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| Past Issues |
February 2010
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Truck insurance is a complex business characterised by lengthy contract
documents and mind-numbing legal terminology - anathema to most fleet
owners! What’s more, truck operators need speedy service and claims
resolution/ excess recovery in the event of truck accidents, theft and
hijacking. What they all want is hands-on service from an insurer who
really understands their unique operational circumstances, providing them
with an insurance package that is not only affordable but ensures optimal
uptime via comprehensive risk cover for their operational infrastructure,
hasslefree. With these ideals in mind,
Chris Barry, HCV I believe our company delivers an affordable package. The underwriting margins are very thin. We are the only exclusive Agreed value Underwriter in South Africa. This means our payouts - guided by the market value system - must be at least 30 to 40 percent higher on average. We were the first to introduce a breakdown towing service for truck tractors. We have recently started a substitute truck hire product for clients whose eightton trucks (or less) are involved in an accident. We have products that provide financial compensation in the event of accidents i.e. the client can be compensated monetarily for loss of income. We also offer free driver training to our clients.We begin our process of underwriting by comparing all the quotes presented. We screen them in detail to arrive at a ‘rands and cents parity of cover’. It is important to ensure you have a spread of brokers that represent as many underwriting companies as possible. The range and quality of brokers is vast and ranges from excellent to mediocre. Often, brokers have specific allegiances to certain underwriters and the transporter will not be aware of the bias to certain underwriters. The transporter, in good faith, will believe he is getting the best advice and cover when, in fact, the relationship with the broker and a particular Underwriter is not disclosed. The quality of cover from various insurers also varies greatly. What is covered or not covered is critical. Excellent brokers will normally clarify the position and that is paramount. Transporters must get references on brokers and policies from fellow transporters.
The government, in my opinion, doesn’t value truck transporters’ contribution to the economy sufficiently (i.e. Durban harbour facilities for truckers). Law-abiding transporters are blamed for ‘bad behaviour’ when, in fact, it is only a few dodgy operators who are causing the problems. A case in point is the double standard existing with regards to road traffic law and trucks from north of our borders. Rail and road are complimentary systems yet the government seems to adopt the mindset that the SA Railway system is on par with the efficiency of the SA Trucking system. This will lead to higher costs as the government appears to want to force the rail system to be used. They will achieve this through exorbitant toll fees and other draconian measures like the banning of trucks on secondary roads. Tom Halliwell, Libra Brokers We are confident that the insurance market as a whole has developed and grown very much in tandem with the needs of the transport industry. Our focus as far as our product offering is concerned has three key ingredients – we conduct a proper needs analysis of the transporters’ risk exposure with specific attention to adequately protecting his assets, his cash flow and cash reserves and again, third party liabilities and claims which might arise from accidents, spillage, pollution, etc.We are on standby 24/7 in the event of accidents and hijackings and assist the client in managing these events. Flowing directly from these occurrences is our fast-track claims service designed to minimise downtime to the minimum. We assist our clients in general risk management and the implementation of risk prevention measures to reduce the cost of insurance over time. The bottom line is the fact that we strive to create a constant awareness of risk exposure among our clients and as an incentive, we negotiate reward-based policies should the claims ratios stay at acceptable levels. We also provide general in-house legal assistance, excess recovery and recoveries against third parties. The different insurance policies currently available on the market are pretty standard among most insurers. For that reason, the innovation in our product offering is not so much in specific policies but rather in segmentation based on various criteria, like having a strong or weak cash flow, a high or low risk exposure, a good or bad claims history, the size of fleet, the level of Risk Management in the fleet, the type of commodities transported, the geographical areas of operation and whether it’s a long or short haul operation. Every client’s unique risk profile will determine the format of our final presentation which can be anything from conventional insurance (full risk transfer) to risk finance (self insurance). Excess structures and premium payments will be structured in line with the client’s budget. Our suite of value added products includes legal assistance, downtime cover, driver health, impairment and death benefits, roadside assistance, driver reports, etc.
We regard driver behaviour as the most critical factor in transport risk management. All accidents or hijackings implicate the driver in one way or another. To assist our clients in driver monitoring and improvement, we offer the following services: driver evaluation; driver training; evaluation and testing of foreign drivers; visual, in-cab driver monitoring using an onboard camera from DriveCam and the Drive Report “Report my driving” bumper sticker and call centre service. It is a known fact that truck insurance generates large premiums and for that reason, attracts the attention of a host of insurance brokers and insurers alike. However, it is a complex market sector with many pitfalls and not for the faint hearted. Our advice for operators is to stick to the brokers and insurers who have been active in this market for quite some time. To differentiate between the good and the bad among them, the client must put them to the test regarding the cost of insurance and affordability, service offering, tailor-made insurance solutions based on unique risk exposure and value additions with regard to risk management. The general feeling is that the recession has flattened out and is in the process of recovery. However, it is our view that the tail-end will provide its own problems. Many transport fleets still find themselves in tight cash flow situations and for that reason, turnover is king, which can lead to increased driver fatigue. The rate of hijackings showed a 30 percent increase during 2009 and the involvement of foreign drivers is significantly higher than previous years. We expect a further increase in the rate of hijackings during 2010. The impact of HIV/AIDS on the collective national drivers’ pool cannot be ignored. This will lead to the loss of experienced drivers and the inflow of younger, less experienced drivers. Although upgrading of main corridors is underway, the vast majority of rural roads are deteriorating at a rapid pace. Damage to vehicles and accidents due to poor road conditions will increase. Chris Smit, Captive Business Consultants The short-term vehicle insurance industry is famous for its ‘smoke and mirrors’ approach to drafting policies and this is no doubt because of the high-risk nature of road transport in South Africa. By presenting clients with pages and pages of fine print, insurers are able to offer low premiums without subjecting themselves to too much risk, simply because most truck clients have neither the time nor underwriting knowledge to fully comprehend the true extent of the contracted risk cover.Captive Business Consultants (CBC) regards this tendency to ‘cloud’ insurance policies with lengthy legal jargon as an opportunity to offer truck transporters a ‘no-nonsense’ comprehensive truck insurance service. Our policy documents are worded in such a way that even the most jargon-wary trucker will fully understand its contents. This approach to ‘transparency’ extends to our personalised service. Most short-term vehicle insurers subject their clients to a callcentre when they need to report an accident or file a claim. We all know how infuriating this can be and how it can be a waste of time and money. CBC gives all its clients a direct-line to a relevant director of our company to ensure swift action is taken whenever a claim is made or urgent queries need answering. The trucking industry really took a knock last year and many operators had to close their businesses which didn’t help the insurance industry. Adding to the pressure on the price of risk cover now is the fact that there is a shortage of trucks because of the recession. This has resulted in consignors and consignees placing time pressures on transporters and drivers which has led to an increase in accidents.
Despite these adverse conditions, CBC is looking forward to an upturn in 2010. Sadly, the truck accident rate will probably increase with the ‘unknown logistics entity’ that is the Fifa World Cup. Those insurers who signed clients on low premiums just to get the business will certainly go under. This is just a matter of the truck insurance market correcting itself, which is a good thing for the transporter at the end of the day. CBC realises that no two truck fleet operations are the same and therefore prides itself on the degree of customisation it offers when designing a comprehensive risk cover policy for its clients. We believe first and foremost in transparency in our business dealings with an unfaltering focus on personal service. This has enabled us to establish a solid reputation in the trucking industry both locally and north of our borders. We have over 120 years combined experience in the truck insurance business and while our rates may not be the cheapest, they offer the best value. CBC’s recovery of excess payments is the fastest in South Africa and our overall turn-around time in all processes is an industry benchmark. Our advice to fleet owners on how to ensure best risk cover is to do the necessary research. Compare brokers and underwriters and opt for the one that really understands your business. Don’t settle for price alone. Ensure that policies are straight- orward with no ‘muddy’ areas. Also make sure that the broker/underwriter has a solid track record in the trucking industry with the necessary skills to handle everything from fair and comprehensive claims handling to stringent accident assessment, accurate repair costing and ultimately, hefty financial backing. Our maxim at CBC is to ‘under-promise and over-deliver.’ Anton Cornelissen, Santam Transport Underwriting For the convenience of our business partners and clients, we have implemented a cost effective company structure which allows for a dedicated and centralised policy and claims administration team. This results in a smoother and more efficient administration and claims handling process, providing a holistic view of gaps in service and full control over these processes.Santam offers a wide range of products that caters for the diverse needs of truck owners and transporters. These products aim to meet each client’s individual risk requirements, ranging from protecting the client’s assets to protecting the business against downtime in the event of a loss. An area that is often neglected is the protection of business finances, the negative cash flow implications of having to pay a large deductible/excess and subsidising large finance costs on the assets. Santam caters for this by providing an array of extensions to basic risk cover. Santam is actively involved with specialised service providers and business partners to ensure that clients are aware of the importance of driver training and screening. Incentives are made available to clients that incur additional costs in managing and improving their specific risk profile. As in all aspects of business, one needs to consider all the risks and benefit options of service providers. Similarly, a truck operator/owner should follow the same process. Operational needs differ from one operator/owner to another and therefore the cover must cater for those specific risk requirements. A fleet owner should firstly consider cost effectiveness of the cover, claims service and support and the underwriting criteria determining the price of the cover. If these circumstances are to their satisfaction, the risk carrier should be an obvious choice. We are keeping a close eye on the proposed amendments of the Department of Transport regarding axle mass reduction. All role- layers in the industry need to participate in the legislative process to consider the impact on operators who already operate on slim profit margins. Another area of concern is the shortage of qualified and experienced drivers and the risk it poses on potential accidents and downtime. In our view, more time should be spent on assessing drivers and adopting more specialised risk management within their operations. Locke Purdon, Trucksurance Trucksurance believes that the insurance must be affordable but it can only be affordable if clients manage their risk accordingly. Premiums are typically based on claims history and if clients can effectively manage their losses, the premiums will remain affordable. The challenge any transporter faces when managing risk is that of reduced production. It is no use having great risk management while the trucks and their drivers are not producing revenue. If a transporter is not making money, then even basic risk management is meaningless. A client that continuously runs a good operation will certainly be paying far lower premiums than a transporter who has a high claims history interspersed with low claims periods. This effectively takes the profits from the good years and subsidises the bad years, ultimately resulting in a break-even scenario for insurance companies. At Trucksurance, we embrace the challenge of providing cost-effective risk management with little or no negative impact on revenue streams while adding significantly to the bottom line of most transporters through ‘spin-off’ cost savings. We believe we can transform a company with a poor loss ratio to one with a great loss ratio thereby reducing not just their premiums but the debilitating costs associated with accidents.
Remarkably, these savings pale into insignificance when compared with the fuel cost savings experienced by transporters using the DriveSmart service we advocate. This is a proactive risk management programme designed to manage safety of drivers and vehicles. Trucksurance is the exclusive agent for a unique insurance product underwritten by Zurich Risk Finance. Simply put, by rerouting insurance premiums through this facility and maintaining a profitable loss ratio, clients earn share options in Truck Indemnity Company (TIC). TIC is a public company established as a joint venture between DriveSmart and selected clients who adhere to the DriveSmart programme. Truck Indemnity Company pays dividends to its shareholders annually. This is a very generous ‘loyalty programme’ that returns more than 50 percent of the company profits back to the clients responsible for making it! Like any share in a public company, the shares have value as well. Clients get to participate in a revenue stream through the dividends and build wealth as they exercise share options. Tables A and B outline examples of two trucking companies who have participated in the programme since inception.
The shares ensure an annual participation in the dividend so while some companies provide once-off profit shares, TIC provides ongoing incentives and paybacks. This is irrespective of whether the transporter has had a bad year of insurance claims and even the best managed transporters have the occasional bad year. Trucksurance pioneered DriveSmart which has its roots in a programme initiated in 1997. DriveSmart is now a standalone company providing Risk Management services to a wide variety of fleets including those of listed companies with their own insurance arms. DriveSmart harvests information from various on board computer suppliers (C-track, MiX Telematics and Powertrack) in order to provide the transporter with reports that are focused on accident prevention. DriveSmart owns its own ‘intelligence’ and uses only the raw data from the onboard computer to provide the reports on drivers and their driving habits in an easy to understand report. The result is that the transporter can effectively manage and coach the driver, but DriveSmart doesn’t stop there. They provide Risk Managers to assist the client in managing drivers to improve safety standards. The result has been a reduction in road accidents and losses, together with improved fuel consumption and maintenance costs. The DriveSmart system works particularly well in the ‘Dangerous Goods’ arena where transporters are subjected to regular audits and have to comply with stringent risk management imposed by their clients. A huge part of the DriveSmart product is an unparalleled Fatigue Monitoring System which provides invaluable data to transporters so that they can identify drivers pushing the boundaries of the fatigue envelope. In short, Trucksurance is 100 percent committed to reducing on-road risk as this is the only way to reduce loss of life and loss of, or damage to assets. The social and economic benefits are immeasurable. A specialised sector We believe that the transport sector is a specialised one and, like all other industries, requires professional and experienced transport operators. By the same token, we believe that a transporter must look for a broker/ intermediary who specialises in transport. In that way they will be in a good position to receive expert advice. There are numerous pitfalls when it comes to insuring a truck, trailer and its load and if the broker/ intermediary is not up to speed on the industry, transporters leave their company exposed to inadequate cover. Beware of the broker who has not spent plenty of time with you getting to know the intricacies of your business. As for the year ahead, transporters must prepare for increased traffic on the roads which will lead to more accidents (take the December fatality stats as an example). Secondly, transporters are going to face a midyear ‘silly season’ with increased delivery requirements and, as a result, are going to need to push their drivers. When the World Cup commences, it will become critical to monitor and manage driver fatigue levels to reduce fatigue-related incidents. From a macro-insurance/economic perspective, we do believe that we are nearing the end of the ‘soft’ cycle where the consumer is in the driving seat. The ‘soft’ cycle ends when more underwriters are making losses than are making money. When this happens, some underwriters choose to get out of risky markets and trucking is considered very risky. Insurers become very selective in what business they underwrite. The net effect is less competition. Those underwriters who remain begin driving premiums up because there is less competition. The market is deemed ‘hard’ when most of the underwriters have made losses and are now correcting their book by increasing premiums. Between now and a full market turn, transporters need to be cautious. Underwriters who cannot stop writing trucking business but who are not making any money and can’t drive premiums up (because of competitive forces), will be forced to become very strict with claims management and repudiate claims. Prudence pays and while you may have to pay a bit more for your truck insurance, you know you are properly covered. Most operators wouldn’t buy the cheapest truck from China without any credentials or track record even if the discount was substantial. Likewise don’t buy an obscure insurance policy with the guts taken out of it. The rotten truck is an easy spot – not so the insurance policy. Don’t buy a policy that is more likely to leave you exposed than it is to provide protection. If it is too good to be true, it usually is! There is no discount that makes a policy like that worth paying for.
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