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Insurance rate hikes jolt rental industry,
but warning signs were plain to see
Kim Phelan
Contributing Editor
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Still smarting from this year’s initial sting of jumbo rate hikes in insurance premiums, the U.S. rental industry can brace for a siege of continued increases yet to come over the next two to three years.
Amazingly, insurance experts say, despite recent rate leaps of 25 to 35 percent, even 50 percent and higher in some cases, many rental dealers still are not paying as much as they paid 10 to 14 years ago. That’s how low the roughly 13-year soft market of nonstop rate drops took rental premiums – and evidently insurance companies intend to make up for more than a decade of decreases and losses at break-neck speed, in a year or two, if they can.
Piggybacking atop the rising rate syndrome is the diminishing number of insurance carriers actually willing to underwrite the reputedly risky business of rentals. A laundry list of factors account for both of these trends, but the dark, hovering presence of ever-increasing claims – often involving avoidable safety negligence issues on the part of the rental dealer – cling to the rental industry like a black stain.
Failure to instruct is almost always one of the counts enumerated in lawsuits, says Phil Kelling, president of ARA Insurance Services, the insurance company of the American Rental Association, and the only one that exclusively serves the rental industry. Of course, rental personnel are not professional teachers, Kelling says, and thorough safety instruction often is not well disseminated to users. Never mind the fact that most renters, both homeowner and contractor, are in too great a hurry to be bothered with reading the manufacturer’s 20- or 30-page safety manual.
Neglecting to give or rent proper safety gear that’s recommended by the manufacturer is another high-frequency problem. Brian Hall, senior vice president at National Insurance Services, which underwrites 1,000 rental stores throughout the country, cites a prime example. Hall says one rental dealer made a deliberate habit of not providing locking pins for the wheels on scaffolding he rented because they cost $1.80 apiece and users seldom returned them. He’s probably adjusted that practice since being sued because a wheel fell off when the user moved scaffolding rented from him.It all adds up
Layers of circumstances make it easy to see why rates suddenly are skyrocketing, and why only a handful of insurance companies take on the rental industry when there are so many other milder, gentler risks they can cover instead. The reinsurance market – companies that insure insurance companies – takes a similar view, perceiving rentals as too risky, and therefore shifting its capital to “safer” investments. This, too, limits insurance companies’ ability to underwrite rentals even when they want to.
Then, of course, there was the long period of soft market, during which an entire cycle in the insurance industry was more or less skipped. In addition, investment income that fed insurance companies for years while premium rates were sliding now has all but dried up, with stock investment returns shriveling from perhaps eight percent to a puny four.
High volume of claims and the greater costs associated with the average claim also take their tolls. And finally, the straw(s) that broke the starving camel’s back are not only the multiple natural disasters experienced nationally and worldwide, but the ultimate blast of Sept. 11. Because so many factors already were mounting, it’s a stretch to lay all blame for rental insurance woes on that doorstep; nevertheless, the horrific event sucked billions of dollars out of the insurance market, and to some extent everyone pays for it.
What decidedly does not impact rental insurance rates, contrary to the independent rental-store rumor mill, are the losses and claims of national rental consolidators. Whatever those losses and accident volumes may be – numbers that can only be speculated – they don’t touch the general rental insurance market, Kelling and Hall agree, because these companies typically are self-insured or insured by subsidiary insurance companies they own. They also probably pay $10,000 to $50,000, as necessary, in out-of-pocket settlements or damage repairs that don’t show up as claims.
Rental insurance claims, and the money they extract from the insurance pool, are growing overall, but do tend to cluster in regional liability jurisdictions, according to Kelling. Depending on their geographic location, rental dealers will feel varying degrees of pinch on their pocketbooks.
“A store in Southern California, where there’s an attorney on every corner, is going to have very different rates from those in Wyoming or North Dakota, where people tend to feel like, ‘Hey, you should have known better than to hurt yourself,’” Kelling explains. Attitudes about responsibility and blame, he says, certainly play a role in determining insurance premiums.
But geography has nothing whatever to do with one of the most frequent causes of loss in the rental industry: equipment theft, and more specifically, conversion loss, which is insurance jargon for theft by deception. And it happens in every part of the country with undiscriminating consistency.
What irks insurance agents most is that rental trickery used by thieves to walk off with equipment under false identification is completely preventable – but it remains one of rentals’ peskiest problems.
“We require our [rental-store] clients to take a valid credit card now,” says Hall at National Insurance Services. “If you were going to rent a car today, I don’t care if you’ve got $1,000 bills pinned to you, they’re not going to give you that car unless you have a valid credit card. The reason is that when they run the credit card check, it tells them whether that card is stolen. If your rental customer has a stolen credit card, you probably don’t want to give him your Bobcat! It’s never a good start to the transaction,” he adds wryly.
Other incidents that top the loss list for rental stores aren’t always so avoidable, unless store negligence or store-performed equipment repair featuring non-OEM parts plays a part in the story. In these cases, says Hall, manufacturers say, ‘See you later,’ and the rental dealer becomes the “deep pocket,” bearing the full brunt of liability.
On the construction, tool and equipment side of rentals, the items involved in the highest number of claims are the industry’ highest reaching equipment – lifts, hoists and scaffolding – or just about anything that puts people high above ground. Trailer and towable losses, Kelling says, are another big claim consumer, particularly for the homeowner market. Improper hook-up of rented trailers and an ensuing auto accident that tips a mess in motion onto the road is an all-too-familiar scenario.
Rental trucks also are big trouble for rental stores, as are rental deliveries by store personnel involved in auto accidents. To shed that liability weight, Hal Kodikian, owner of Rental World, Lansdale, Pa., has eliminated truck rental from his offerings. Even so, he admits that small, “pain-in-the-neck” employee driving claims have plagued his company with greater frequency over the last year, and he’s on the hunt for effective training videos and seminars to get a grip on safety issues and driving habits.
On the events and party side of rentals, wind and weather usually are to blame for claims, and the items most often involved are tents and, now in greater numbers, inflatable slides. The raging popularity of high-thrill, not to mention high-risk blow-up slides is blowing up accident occurrences with every gust of wind. Putting young children, typically preschoolers, 20 and 30 feet above ground, the slides often are not properly staked and secured, and, as Kelling tells, when children are hurt and the lawsuits are filed, there is no defense.
One of his company’s earliest and biggest cases involving a rented inflatable slide occurred in the spring of ’02 when the renters installed the slide on a parking lot instead of grass – wind blew the slide and its small riders over on a little girl in a wheelchair.
“Guess who’s going to pay big time!” Kelling says.
Insurance-claim records for party rentals also are clobbered by the innocuous little item known as the chair. What kind of severe accident could remotely be related to a chair? Kelling says, imagine the neck and back injuries or broken bones resulting from a 325-pound man sitting on a plastic folding-chair, or a tipsy mother-in-law balancing on a little folding chair to take a picture at a wedding. There’s also the hazard of rented dance floors, always in attendance on the insurance claims roll call.Get your house in order
All really is fair in the insurance business, although rental dealers who are being socked with soaring premiums may not see it that way. You more or less reap what you sow, and, for every Clint Eastwood fan, there’s a little good, bad and ugly to go around: the good rental operators, those who run an orderly, safety-conscious shop, are rewarded with manageable (or at least less odious) rate increases. Bad rental operators, those who have lousy claims histories and sloppy procedures, are offered ugly rates that will likely get uglier.
To avoid truly ugly rates, Kelling and Hall offer these tips – they also recommend that rental owners listen carefully to the advice their own insurance agents give them.
Brian Hall says:- “The best thing a rental dealer can do is police his own house. It all starts with management – if management is claims conscious, the employees will be, too.”
- “Get certificates of insurance from contractors who rent from you. That way if they ‘lose’ a piece of equipment we can go back to their insurance company and collect from them and not have it on your record.”
- “Always rent the proper safety gear recommended by manufacturers – this is very, very important.”
- “Look at your counter practices. Make sure your people are getting proper identification and looking at drivers’ licenses. And take a valid credit card.
“If you had $25,000 in a suitcase, would you let a guy carry it out to his car without any identification or way of tracking him down? A lot of rental dealers don’t think of it that way. They have a very expensive piece of equipment – what thief wouldn’t be willing to trade a $300 cash deposit for a $25,000 item? And he’ll be somewhere in Mexico with your equipment by the time you figure it out.”
Phil Kelling says:- “The most important thing rental dealers can do is run a good operation: maintain their equipment well and document maintenance; keep it clean; buy good quality equipment; and replace it often with new, safer equipment.
- “Take extra care in training your employees; set high standards for them. And, train the customer.”
- “Control your drivers – auto accidents while making deliveries to customers are a frequent cause of claims. Don’t let just anybody jump into the truck and take off.”
- “Ensure that your equipment is secure from theft. Use GPS systems or other anti-theft devices.”
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