William Holler, senior vice president of US insurance broker Hays Companies, explains how the powered access equipment insurance market has changed over the last 30 years and what lessons can be learned internationally.
A few, short 30 years ago there was no such thing as a powered access industry; much less insurance for it.
One of my very first insurance clients in the aerial equipment rental business was Equipment Supply, Inc. They credited me with ‘teaching’ the insurance industry what an aerial platform was and how it would revolutionise the access/scaffolding industry. Deservingly or not, I made a career out of specialising in insuring manufacturers and dealers in the aerial work platform and access industry.
I currently work at Hays Companies, in their Chicago office. Hays Companies is the 19th largest Insurance Broker in the USA. My associate Debbie Szyszka and I have always had a specialised insurance programme for the aerial equipment industry.
In the beginning, the insurance companies really had no idea what or how these powered aerial scissors and booms would work out. Many of them felt that allowing an operator to be able to move these machines at height was insane. Other insurance carriers were starting to believe that anything would be safer than the scaffolding/ladder combination.
The general liability exposure has always been the toughest coverage to insure. At the beginning, AWP rental companies were paying in excess of 3% of receipts, with very high retentions, deductibles. As the access industry became safer with pothole protection, lock out circuits, etc., the general liability rates started to fall. The rates went down fairly quickly, although they stayed at 1.5% for several years. I remember all of my customers rejoicing when the rates finally got to 1% of revenues.
Rates drop
As the aerial equipment manufactures made safety a priority and as OSHA and ANSI mandated safety procedures; the insurance industry became more comfortable with this new phenomenon. General liability rates dropped significantly to under US$5/1,000 and even lower on larger accounts.
Even though the insurance rates were dropping as the equipment became safer and the construction economy picked up, the liability insurance has always been provided by surplus lines insurance companies, which do not file rates with the ISO, insurance service offices, in any state. Surplus lines companies determine their own rates based on exposure, losses and appetite. These companies specialise in high hazard and high risk exposures.
Amazingly, with all the improvements in the manufacturing processes, the extensive training provided by the aerial rental companies, the extensive maintenance provided by the aerial rental companies and all the other significant improvements made over the past 35 years; for the most part, the only insurance companies willing to provide liability coverage is still the surplus lines insurance community.
Two very significant events happened to change the game. The first was the immense amount of consolidation, which eliminated many of the independents; which, in turn, took premium out of the insurance market place. The second was 9/11/2001. The domestic and international insurance markets lost huge amounts of money. The largest losses were to the reinsurance companies - the reinsurance companies insure the primary insurance companies.
These losses devastated the insurance industry profits and the industry changed overnight. No longer did the insurance companies look at the sterling loss record of the powered access industry, they needed to recover premiums and profits as fast as possible. From 2002 to 2005 clients’ premiums and rates doubled. Some independents went without insurance while others closed their doors. The rates began to come down again in 2006 when, shortly thereafter, the financial crises hit. As revenues plunged, rates went up. The theory was that the aerial equipment rental company has to pay a certain premium to offset the risk, even though their revenues were depressed.
Economy reactions
Finally, in the past three years, with new construction projects and higher revenues for AWP rental companies, the rates have again come way down.
I primarily discuss the general liability rates here, however, equipment floater, property, auto/truck, cargo, professional, workers compensation and umbrella cover all followed the same volatility.
For the past 35 years it seems that the insurance industry has abandoned its own policies and protocols based on premiums versus losses and has just reacted to the economy. The longstanding formula was that insurance companies can make a decent profit if the losses are 40% or less of the premiums. Unfortunately the insurance community have been running 90 - 110% loss ratio and attempting to make up the difference in investment income.
Although I work exclusively in the USA, I do not believe that the international insurance community chased these various cycles. The international insurance companies do not face the litigious climate that our domestic insurance companies do. Although, it is my understanding that this may be changing for the worse.
A very interesting and significant development in the construction industry is that all contractors, owners and other involved parties are doing everything in their power to contractually transfer all risk and exposure to anyone and everyone else.
Rick Dahl, president of Metrolift, Inc., in Illinois, US, sees it this way, “It is important to have a company like Hays that will handle our insurance requests and do their best to minimise our liability and inland marine exposure in the marketplace.
The biggest contractor, customer challenge starts with the indemnification requests we are receiving. The owners of property seem to ask for this even if the vendor, (like us), is doing very little business with them. It has become difficult to even understand some of the many pages of paperwork we are receiving daily concerning the protection of the GC or the property owner. I realise this is a shift in the underwriting business of who should be responsible for this type of exposure, and down the road we need help determining who we can deal with and who we can’t.
The insurance business must be viewed as a very important part of a rental company’s team of vendors, similar to a banking relationship. The insurance broker must understand the customer they are dealing with and defend them when need be.”
Nothing replaces the benefits of safety. The one constant that the entire insurance community share is that safety is paramount.
Safety Note
As Peter Kim, assistant vice president, risk management services at Philadelphia Insurance Companies, explains, nothing replaces the benefits of safety. “Improved accident prevention measures have helped contribute to the sustained growth of the powered access equipment industry in the US. While the industry isn’t accident-free, safety improvements have kept claims and lawsuits from hindering overall growth.
Engineered safety improvements, such as pothole protectors, anti-entrapment devices, tilt sensors, etcetera, have helped boost worker safety. Also, more prevalent training and certification, as well as familiarisation training, have been critical pieces to the safety equation. And, other risk management efforts (proper equipment selection, rental agreements with sound indemnification wording, thorough and documented inspections and maintenance, prompt accident investigations), have helped reduce the overall loss costs for the industry. However, there is no silver bullet.
Engineered controls aren’t effective if users aren’t trained to operate their powered access equipment in a safe manner. Operator training can’t make up for shoddy maintenance or management decisions to use equipment that’s not suited for the job. It has taken engineered safety controls, certification and training, and smart risk management steps working together to improve overall safety outcomes in the United States. The key now is to continue the push forward on all three fronts, recognising that each aspect is critical and multiple options are valuable. Then the industry will see positive trends in the overall costs.”
