Heading down a proven road

Trucking specialists stress service instead of the lure of price

By Eric Hall

Amidst an uncertain economy, the long-running soft market and significantly rising fuel costs, one may wonder how anyone associated with the trucking business could dispatch the expectation of a profitable return. But such is the case with those insurance professionals engaged in the business of writing commercial auto insurance.

According to Doug Setters, president of Creative Underwriters, a Carmel, Indiana-based managing general agency that specializes in trucking insurance, "We as entrepreneurs understand and have come to accept the present reality of doing more with less. But that is not to say that there isn't opportunity. There really is value in working hard and working smart. Good risk surveying by the producer can reveal missed exposures and coverage improvement opportunities. I had a producer tell me a while back that good survey work makes selling insurance seem like 'sheep stealin'; they can't get the coverage bound fast enough. Insurance prospects come to insurance markets for financial security, and in this industry aren't we in the financial security business?"

Setters goes on to say that as the soft market continues, Creative understands that there are just some accounts for which they choose not to "compete" by significantly underpricing the risk because they know that eventually, in most cases, the account will return. Says he, "We live to fight another day."

He adds, "I think the term 'competitive' is typically used rather loosely in the insurance industry and suggests only pricing as a consideration for risk placement. Insurance marketing is really much more interesting than that. In most commerce, the value and viability of a product primarily involves what the product does and how it performs the function for which it's acquired. Our industry needs to learn to do a better job of selling value in its products, especially as prices drift up. If an insurance client comes to an agent for low price, they'll leave for a lower price. All our top producers have very high hit ratios, and it doesn't matter what market cycle we're in.

"History has shown that prolonged soft specialty markets attract new players who are anxious to put cash flow before underwriting profit," Setters continues. "Today this trend may have been accelerated as the options for new capital investment in the financial arena are fewer, and better returns may be sought in alternatives like creating a 'new' insurance market. Likewise, what is also true and what history has repeatedly shown, is that these new markets have little experience and no earthly idea of how to price their risks, and henceforth this form of market dislocation leads to the failure of the new market that eventually yields a return to the principles of better underwriting by those specialists who know how to provide good service at a fair price."

According to Brent Moody, assistant vice president, underwriting at NBIS in Atlanta, Georgia, a transportation managing general underwriter, there have been competitive situations with new market players who aggressively pursued premium dollars near the latter part of 2008, but over time most of this type of competition has disappeared. He points out that some of the soft market competitors are still around, and there are still pricing pressures at work.

As to how NBIS responds to such pressure, Moody advises, the key is in knowing when to walk away and when to stay. Focusing on the premium is how you lose business; focusing on the insured, agent and the value of the relationship is how NBIS keeps business.

"In every instance we consider the client's account and review the overall risks in order to have confidence in any rate adjustments. Service the entire account not just the coverage."

Moody says that the real key to profitability is confidence in the niche services offered and having the expertise in house to target specialized transport trucking outfits. The advantage of this unique class of business is minimal long-haul exposure and, due to the oversized load, a more experienced class of operators. He adds, "We have a pretty unique business model at NBIS that allows us to exercise real flexibility and to demonstrate to both the producer and the client our sincere dedication to service.

"What I mean by that is we use a holistic approach to underwriting that includes perspectives from all sides of the business: risk management, legal, and claims management. This approach is born from the service mentality at NBIS where we are dedicated to the client's account and servicing all aspects of that account. For example, if we provide the insured multiple coverage lines, in the event of a claim a single claims adjuster is provided to manage the claim across all coverages—saving time, cost and adding value. We look at all aspects of the account and consider the best way to provide risk management and insurance solutions."

Setters says that he believes the "soft" market has nowhere else to go and producers need to learn again to feature relationship, coverage, and strengths of the carriers they use. Says he, "Unfortunately, for the past few years, the market has taught insureds to expect premium reductions at renewal every year. Insureds can no longer typically expect premium reductions at renewal unless perhaps the risk had been heavily surcharged and has greatly improved. The market is now generally starting to drift gently upwards in general transportation premium pricing and will for the next few years."

The author

Eric Hall is executive vice president of The Rough Notes Company.