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Insurance Challenges Face The Independent
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Material handling equipment distributors have been under some pressure lately from the volatile insurance market. The pressure results from a host of reasons: inconsistent underwriting capacity, uncontrollable work environments, not making the insurance renewal a priority, lack of competition and unfavorable contract language.
Inconsistent Underwriting Capacity
A small handful of underwriters provide limited capacity directly for the material handling industry. Capacity is inconsistent from one year to the next, particularly with respect to pricing and whether or not they want to continuously entertain this segment of business. For example, in years one and two, underwriters typically are very excited about providing coverage. In year three, it's a loss leader, and they decide not to offer renewals, or they offer them at a hefty price increase. Then in another year or two, they come back into the marketplace. It can be a roller-coaster ride for distributors.
Another problem is that underwriters typically overreact when a claim does occur by taking capacity out of the marketplace. The dealer who hasn't developed a lot of relationships with individual underwriters and brokers is going to be scrambling to find coverage to conduct their business.
Uncontrollable Work Environments
Workers' Compensation losses associated with service technicians will continue to rise due to the uncontrollable work environments from one customer to another. One thing particular to material handling dealers is the technician driving to customer locations to perform service. One customer may have a set-up that is very clean and well lit, with all parts for the truck easily accessible. The next customer environment may be a freezer with ice all over the place, or a place where the technician cannot easily get to the engine. This is where distributors have their greatest Workers' Compensation exposures.
The solution is instilling proper behaviors when technicians are operating on their own without supervision—what I call a culture of safety. Think of the television show Hill Street Blues. The sergeant would always say before the police went off on the beat: “Let's be careful out there.” It's a constant reminder that you're concerned about people's safety and that they should be concerned about their own safety. If people start thinking that way, they may pause and ask themselves if they need help. The key going forward is modifying behavior.
| Insurance Renewal Is Not a Priority To obtain the optimal balance between terms and conditions, price and a competitive edge, distributors must prove to the underwriter that their operations are less risky than those of the dealer down the street. Present an underwriting submission showcasing your dealership in the best possible light. The submission should include: |
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| Differentiating yourself from other dealers will protect you from the variance of the historical markets and open up other underwriters to entertain material handling distributors. |
However, enough time must be allotted to prepare the submission. Be sure to begin the renewal process 120 days prior to the policy expiration. An agent can't do anything for you five days before renewal, other than prepare for the next time.
Lack of Competition
To ensure that the insurance program purchased continues to be consistent with current underwriting trends, the dealer should, at a minimum of every three years, introduce competition by having alternative agents obtain quotes. Assigning all underwriting markets to the incumbent agent will not yield the best result because it often is not in their best interest to make the best deal for you. If they're paid on commission, how aggressive are they going to be in knocking down the price when it also affects their commission stream? They may favor one market over another because of a contingency agreement in addition to commission. It is okay to ask what they are making on the carriers they are proposing.
| Unfavorable Contract Language Dealers consistently are being pressured by customers and suppliers to enter into contract language that is not in their favor. Rarely are the contracts activity-specific to the relationship. They instead are generic contracts that are sent to everyone from the copier repairman to the customer who wants 20 forklifts to the contractor erecting their new building. Contract clauses to be concerned with are: |
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Use of Subcontractors |
Also, distributors should have subcontractors enter into indemnification agreements whereby the dealer is not at fault for the negligence of the subcontractor. An example is if the subcontractor uses an acetylene torch and sets the whole inventory on fire. Not only is the building damaged, but the customer can't load its products to make any money. The dealer should not be responsible for that kind of activity.
The good news for dealers is that the climate is beginning to change. People are getting smarter. Some bigger companies now have wording specific to forklift maintenance. There is a change going on, but not everyone's there yet. Don't get left behind.
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