Five million dollars. To an insurance company, that represents the potential payout for every bus accident. Numbers like that also represent a growing trend of high injury and damage claims sought by plaintiff attorneys and awarded by jurors — one of the key reasons insurance premiums have skyrocketed to new levels.

Add in equal parts of the crumbling stock market, insurance fraud and the effects of September 11, and you have a recipe for higher insurance costs that are passed down to the motorcoach operator in the form of higher premiums.

Although rates appear extraordinarily high now, they are actually in accordance to higher vehicle values and medical and legal costs. Insurance rates of yesteryear were too low to ever properly account for what was actually covered.

"The product was under-priced fairly dramatically for the better part of the 90s," says Randy O'Neill, senior vice president of Lancer Insurance Co.

Instead of offering realistic premium rates, insurance companies took a gamble by offering lower rates to gain a share of the motorcoach market. Multi-million dollar personal injury and physical damage claims began to eat away at the insurance industry and the motorcoach industry, which was seen as a "cash cow" by plaintiff attorneys.

Insurance companies also opted to roll the dice by covering their losses with investments. But when the stock market crashed, their investment portfolios also took a tumble.

Nationally, about one-third of specialized insurance companies disappeared in the late '90s, while others stopped coverage for motorcoach operations. "A lot of bad decisions were made. Many of those companies have completely gone out of business or have just withdrawn from this segment of the market," says O'Neill.

Re-insurance factor
Another key factor impacting insurance premiums is higher rates in the re-insurance market. Re-insurance companies insure insurance companies. "[Re-insurers] are the people we go to, to spread the risk," says O'Neill.

Besides providing the capacity for million-dollar policies being issued to bus companies, the re-insurance industry was also greatly affected by September 11, resulting in a dramatic increase in costs. The re-insurer passes on increased rates to insurance companies, which trickles down to the consumer.

"Even before September 11, the re-insurers have had two or three very bad years of casualty losses. They only have one place to get that money back, and that's in raising premiums," O'Neill says. "The cost of our re-insurance goes up and that has to be factored into the price that we are charging the end user."

Higher premiums
Although rates have jumped considerably, some consumers feel the rates are not high enough to substantiate the costs associated with them.

"The fact is, insurance costs today are extremely low relative to the risk," says John Croswell, president of Croswell Bus Line in Williamsburg, Ohio, which operates 35 coaches. Last fall, Croswell hired a full-time risk manager to evaluate all aspects of operation to minimize risk. "Risk management is going to be what makes them successful or destroys them," he says.

On the other hand, some operators have been stunned by the higher prices and are struggling to find ways to meet the new demands on their pocketbooks. "My bus insurance went up 22%. I'm downsizing from six coaches to two," says Ron Taylor, owner of Ron Taylor Tours in Lodi, Calif. Taylor says the increase in insurance rates, workers' compensation rates and fuel prices have made it impossible for him to sustain his full fleet.

Gordon Jannsen of Jannsen's Charter and Tours in Port Orchard, Wash., whose gross sales dropped $200,000 in 2001, is also frustrated with the jump in premiums. "I am paying $6,000 a bus for insurance," says Jannsen.

Other operators have resorted to charging higher prices to cover operational costs. "We have raised rates and we will continue to raise them at certain times depending upon demand," says Michael Curreri, owner of Entertainment Tour Inc. in Braintree, Mass. Curreri says business has dropped off for his 18-coach company since September 11, making it more difficult to handle rising costs. "Everybody is dealing with [higher premiums] as best they can," he says.

Prudent underwriting
These days, insurance companies are more conservative in their coverage choices, says O'Neill. "They have to be if they want to stay in business. Underwriting is really where the game is won or lost," he says.

Brad Schneeberger, general manager of American Highways Insurance Co., agrees that insurance companies have become more frugal in their coverage choices. "It's a more conservative and tighter market out there. The prices are up and the number of submissions that are declined are up," says Schneeberger. "Everything that was important before is ten-fold now."

Schneeberger says hiring quality drivers, properly maintaining buses and providing valid documentation to support DOT inspections are key in being viewed as a good risk by underwriters.

During the underwriting process, motorcoach operators should make a strong effort to present the best aspects of their business. Get the attention of underwriters by attaching additional information to applications that boast about company programs, such as driver training. "Now, more than ever, operators have to make themselves stand out from the pack," O'Neill says. "It's critical that [operators] do this, otherwise it's comparing apples to apples."

While reviewing a company for renewal or new insurance coverage, underwriters look out for certain red flags alerting them to a possible high-risk operation. High driver turnover is one of many key warning signs for underwriters. "There is something wrong when a company is constantly churning through drivers," says O'Neill.

Insurance companies such as Lancer are also sensitive to companies that expand too rapidly. A motorcoach company previously running eight or 12 coaches and now running 30 is a different company altogether, O'Neill says. "If their whole management structure has changed and their training … this would send us a red flag to look a little deeper into what's going on and how they have changed their operating regimen to reflect their growth," he says.

Grooming good drivers
Aside from the general principles of how a company is run, driver selection and training is a major concern for insurance companies. Driver background and selection criteria are also of paramount importance for coverage choices.

Motorcoach operations should have formalized driver-training and re-training programs in place to be considered a good risk. Like any other profession, drivers need to keep current with the tools they are using. "It's very important for in-service drivers to get retrained, particularly as the equipment gets more and more sophisticated," O'Neill says.

Driver training and safety programs have always played an important role at James River Bus Lines in Richmond, Va., where a lot of money, time and effort have been put into its establishment, says President Stephen W. Story. In addition to the obvious safety aspect, the program has kept losses down. "We are proactive about it, not reactive, where someone is retrained after an accident occurs," says Story.

The extensive driver training and safety program employed by James River starts at the hiring process. Prospective drivers are given background checks and personality tests are conducted to identify such traits as whether a person can handle stressful situations. Drivers then go through a six-week training period, which includes classroom time doing logs and procedural work, as well as behind-the-wheel training. After the initial training, drivers are reassessed two to three times a year to make sure they haven't developed any bad driving habits.

Some operators have looked to employing older drivers as a way of minimizing risk. "I don't have any young drivers. I think older drivers are more cautious," says Jannsen. Of Jannsen's five drivers, the youngest is 50 years old. "All of my drivers drive because they want to, not because they have to," he says.

Higher deductibles
Operators can also manage risk and keep high premiums at bay by taking on a higher deductible.

By assuming some of the risk, the operation in effect becomes a partner of the insurance company, says Lancer's O'Neill. "You can dramatically reduce your premium, and certainly you are much more motivated to practice loss prevention and risk management because you are a player," he says.

Working the deductible valve to your advantage can make insurance costs more predictable. Insurance plans with a higher deductible allow for lower premiums to be passed onto the consumer. By paying less money up front, the consumer assumes a higher risk by having to pay more later for a claim.

Some operators, such as Michael Bilic, general manager of Blue Star Services in Portland, Ore., that find the present insurance situation limiting have offered to pay higher deductibles to keep their costs down. "When we have gone for renewal we tell the insurance company that we are willing to have a $5,000 deductible to keep our premiums down," says Bilic.

Captive insurance
Another way for motorcoach operations to take on more risk is by forming or becoming part of a captive insurance group. A captive is an insurance company that provides insurance to and is controlled by its owners.

"They provide insurance to themselves," says American Highways' Schneeberger. "Captive insurance companies reduce costs, improve risk management and allow the operator to get a return on underwriting profits."

Story of James River has seen a reduction in premiums by becoming part of a captive insurance company. Because his operation's losses were exceptionally low, taking on a greater amount of risk was a good choice. "We never achieved the savings that we thought we should [with traditional insurance] because we ended up being pooled with other companies in our region," Story says.

Another benefit of a captive is the amount of control retained by participants. "We control where our money goes, who participates and who provides our safety services and claims adjustments," says Story.

Identifying fraud
The issue of insurance fraud, a further contributor to the high cost of premiums, is an area where operators can educate themselves to reduce exposure. Although insurance fraud is not new to the industry, it is getting more sophisticated and costly to the company it affects. Some insurance companies have departments devoted solely to resolving this issue, such as Lancer Insurance's fraud investigation unit.

It is only within the last 10 years that the industry has become better equipped to deal with fraud, says Lancer's Director of Special Investigations Angelo Baio. "One of the more common methods for fraud is to exaggerate injuries in a minor accident," Baio says.

Identification of a suspicious situation or an attempt at fraud is key. Other ways to prevent fraud include: timely reporting of all claims, complete passenger lists to prevent "jump-in" claimants, complete witness ID cards and photographs of the accident scene that include all vehicles and parties involved.

Baio also recommends that operators educate themselves and their employees on the indicators of insurance fraud published by groups such as the National Insurance Crime Bureau, which can be accessed at www.nicb.org.

10 steps to the best insurance quote

After many years of declining prices for coverage and higher competition for business, the insurance world has changed. The days of easy and low cost coverage are gone. Now, motorcoach operators have to prove their worthiness for coverage to a very skeptical insurance community.

While you cannot directly and individually impact the global economy and the changes it forces upon pricing, you can work to obtain the best deal within the range of prices available. Whether you deal in a traditional insurance market or explore other options, your coverage costs can go up or down based upon the nature of your company, your history and how you present yourself to the insurance underwriting community.

Here are 10 ways motorcoach companies can help get their operation the best insurance quote possible.

1. Get professional assistance if you need it. Buying insurance correctly can positively affect your operation, your personnel and your future as much or more than many of the other decisions you make. Buying it incorrectly can expose you to risk, personal loss and unnecessarily high costs. Having a qualified, licensed and insured professional agent or advisor guide you through the complex process is one of the wisest choices you can make.

2. Choose the right coverage. Multiple lines of coverage, such as liability, physical damage and workers' compensation, may be needed. It is critical that you take the time to select the proper coverage with the appropriate level of protection based upon what you do, where you are and how you do business.

3. Begin your preparation early. It will take time to assemble information for submission and to create an application that will improve your chances of getting a better quote. In today's world of insurance staff cutbacks, it will also take more time for an underwriter to get to and review your submission. Short turnaround and quick quotes are not the norm.

4. Spend some time on your application. Whether it is new coverage or a renewal, you are marketing your company, so think about what the application looks like, how it will be presented and the impression it will make. Include more than the basics in your application and use bullet items to make evaluation quick and easy. Also detail who you are, the qualifications you have to operate a sound and safe business and what sets your company apart from the pack.

5. Share the risk. Choosing a self-insured retention or a deductible means you are willing to share some risk, creating a positive image in the mind of an underwriter. If your loss costs go down, deductibles can be the best deal by reducing total costs.

6. Detail your safety plan. Show how you control losses by proper driver selection, driver training and on-going management. List your most significant operating rules and standards and show how you meet them everyday. Show the effectiveness of your efforts: offer quick summaries of government safety ratings (from USDOT and MTMC), customer comments and letters and discuss the use of technology and the impact it has on your safety and efficiency.

7. Get into detail about your driver force. Although insurance companies may rate and charge by the number of vehicles in your fleet, they are really insuring drivers. Offer information and profiles as to drivers' experience, age, longevity, safety records and violations.

8. Explain claims history. If there are claims problems in your past, it is critical to explain to the underwriter what you did about the issues. Take the time to discuss the things that did go wrong and the remedial actions you took to prevent recurrence.

9. Equalize insurance coverage. Not all operations are insured equally. Some routes, types of business, or operations travelling in certain jurisdictions create higher loss cost than others. Learn what types of business are more expensive to insure, creating higher coverage costs, and reduce or eliminate your exposure to them.

10. No surprises. Tell it like it is — the good, the bad and even the ugly; what you do, the history of where you have been and details of what you are planning. Insurance underwriters have access to multiple sources of information about your operation. In the absence of information that should have been supplied, underwriters refuse to quote.

—Jack Burkert