Cedric Stephens insurance HELPLINE
QUESTION: I am having a similar problem to the transport operator from Spanish Town whose letter was the subject of your article on August 18, 2013. I am having a hard time in obtaining insurance for my vehicles. Only one company is offering coverage. Is there anything that you can do or suggest that can assist me?
- T.A.M, May Pen PO, Clarendon.
HELPLINE: Recent newspaper headlines suggest that the imbalance between motor insurance demand and supply is only one of many problems that plague public-transport operators like you.
Take the case of the Jamaica Urban Transit Company (JUTC), a leading player in the industry. Even though JUTC does not buy traditional insurance like you do, it has big problems in paying claims to persons who are injured by its many buses or whose property are damaged in collisions.
That company, according to The Jamaica Observer, "finds itself hopping, skipping and jumping on legal fire coals, as its accident claims keeps rising".
While it has "chopped" the number of accidents, "its claims obligations and legal fees are somewhere in the region of $800 million".
JUTC is noteworthy for many reasons. It self-insures the liabilities that are imposed on vehicle owners/drivers under the Motor Vehicles Insurance (Third-Party) Risks Act. All of the costs that are directly and indirectly associated with accidents for which JUTC is legally responsible are ultimately paid from its bank account instead of the bank account of an insurance company.
Self-insurance is cheaper than buying coverage from an insurer. Some of the J$8.3 billion in losses reported by the company at March 31, 2010, according to this newspaper, is due in part to the cost of claims.
The public transportation industry is also suffering from an image problem. There were three articles in last Thursday's Gleaner which provide examples of some of the things that contribute to the negative perceptions.
The leading story — which bore the headline 'Day of Horror' — provided information about four students who were killed and 22 injured while travelling to school. In the second, a passenger wrote about "reckless and dangerous driving" and "the smoking of spliffs" by the conductor and driver of a minibus.
In the third article, the writer bemoaned the fact that the conditions under which passengers are being transported, particularly students, have not improved in over 20 years.
The random comments I have selected offer some reasons why insurance companies tend to avoid insuring the vehicles that public-transport operators own.
They also explain why the market for the insurance of public- passenger vehicles continues to shrink and why getting coverage is becoming more difficult.
Some ways to solve your problem:
Try to understand the market and how insurance-company managers think. Like most for-profit businesses, insurance companies exist to make money for their owners. As a result, they try to avoid writing those risks where they are more likely to make losses. When the demand for coverage outstrips the supply, as is the case now, insurers have greater freedom to pick and choose among potential buyers in order to meet their profit target. In the case of Trinidad, on the other hand, where there are many more insurers than in Jamaica, industry sources there say, buyers have the upper hand. Since insurers are in the business of managing risks, those operators who can show insurers that they are better at managing their risks than the average operator are more likely to get coverage.
Develop and manage the relationship with your insurer. Relationship management implies the creation of a partnership between you and the insurer instead of seeing the company as an enemy. It also means maintaining a level of communication that allows you to identify potential sources of costly problems before they come to a head. Bear in mind also that you and the company are also in the business of managing risks.
Share with your insurer the things that you will be doing on an ongoing basis to reduce the risks that are associated with your business. In other words, consider obtaining insurance as only one part of the process of managing your risks.
Study the Road Traffic and the Motor Vehicles Insurance (Third-Party) Risks Acts. It is surprising how many transport operators are unaware, for example, that because the limits that are imposed under the latter act are low, they can become responsible financially to claimants — especially where many persons are injured or killed — when policy limits are exhausted.
Take great care in selecting the driver of your vehicle and involve your insurer in making the decision about who you will employ. There are many cases on record where operators find out after the fact that some persons should not have been hired.
One of the outputs of the research that I undertook in order to write this article was that my favourite search engine — Google, as regular readers will know — listed nearly three million sources of information relating to risk management for public-passenger vehicles.
I am very confident that if you were to spend a few hours doing some homework that you will find some more ideas to help you manage the risks of your business more effectively and improve your chances of buying motor-vehicle insurance in the limited market that currently exists.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. email@example.comSMS/text message to 812-7233