The bleak liability insurance picture that has burdened coach operators for more than two years shows few signs of brightening any time soon.
While operators may have noticed that the availability and rates for some commercial and property insurance have improved, the liability insurance market for the coach industry remains, in two words, the pits.
About the best that can be said about the outlook for coach liability insurance is that the worst is probably over - for the better companies. Operators that have suffered heavy losses are likely to face even tougher insurance days ahead.
A glimmer of optimism had surfaced a few weeks ago when Moody's Investor Services reported that the availability of commercial insurance had improved and premiums were declining.
That hopefulness stemmed in part from the impact of the terrorism insurance program that was adopted by Congress and signed by President Bush last year. Moody's said the terrorism insurance program was helping insurers diversify their exposures, increase the availability of commercial insurance, and ease up on commercial and property insurance premiums.
But the good news on the commercial and property front doesn't extend to coach liability insurance because of the complex nature of the industry and the way it is segmented.
"Passenger transportation operations, especially tour and charter bus operators, have never been prone to an insurance industry catastrophic loss due to terrorism," explains Alan Spachman, president of National Interstate Insurance Co. of Richfield, Ohio.
"If one plane or one bus were subject to attack, it would not be a significant enough loss to jeopardize the entire industry," he says. "Bus risks are more prone to significant liability losses due to accidents than they are to a large loss due to a terrorist attack. Large losses resulting from a crash can happen at any time and they have happened at an alarming and increasing rate during the past few years.
"These are the large losses bus operators need to fund and the ones the insurance industry has found to be increasingly more expensive and less predictable," says Spachman. "Much of the increase in large crash losses has been the result of aggressive action on the part of the plaintiff's bar and runaway' jury awards. The new terrorism insurance legislation has nothing to do with everyday losses resulting from accidents," Spachman adds.
Timothy D. Delaney, executive vice president of Lancer Insurance, says it remains unclear whether liability insurance rates have yet to reach "adequate levels" in the coach industry. The reason for the lack of clarity, he says, is because insurance companies continue to face major unknowns.
"First, many large claims are still outstanding from the 1999 to 2002 years, making it very difficult to determine rate levels on a go-forward basis."
The second factor weighing heavily on coach liability insurance market, says Delaney, is reinsurance. He says the reinsurance situation is so serious that the industry may be facing a "reinsurance crisis.
Total reinsurance recoverables (that is receivables) for the U.S. insurance industry is presently over $200 billion, which exceeds the entire net worth of the property casualty industry right now."
The four largest reinsurers would be insolvent today if their parent companies had not injected new capital, notes Delaney. The world's seventh largest reinsurer, Gerling Global, was on the brink of insolvency when it was taken over earlier this year by the German government.
In this country, "the State Guaranty Funds in New York, Pennsylvania and California all appear to be insolvent with unknown ramifications for the future," Delaney notes.
"Reinsurance companies pay for a lot of the excessive liability losses that have impacted bus operators," adds Spachman. "The (terrorism insurance) legislation is of no benefit to the insurance companies that ultimately assume much of the bus industry's risk."
While Delaney and Spachman obviously aren't out to sugar-coat the coach industry insurance picture, they do offer modest points of optimism.
"We at Lancer believe the worst is over for the better bus operators, but caution that operators with heavy losses will have a much harder go of it than in the past," says Delaney.
"The new terrorism legislation has been helpful to the country and commercial risks in general but of not much benefit to the charter and tour bus industry," says Spachman. "Significant tort reform, on the other hand, could go along way toward helping to reduce the cost of motorcoach insurance."