Taxi drivers are often regarded as dubious risks by underwriters, but it's not necessarily a valid assumption. Brian Binnegar investigates the market.
Turmoil is a good description of events over the last two years in the UK taxi and private hire market. Poor underwriting results have undoubtedly been influenced by the rising number of injury and accident claims, but the prime cause has been soft rating. Until this year's increases, premiums were not far away from their 1990 level and, since that time, costs have risen dramatically.
Tradex Insurance's Roy Clegg takes issue when he hears other underwriters saying taxi drivers are bad risks. "There's nothing wrong with taxis - it's our rates that are wrong," he says. "Licenced taxi operators are self-employed people running a business with a significant asset paid for out of their own pocket. They also have to buy and keep the appropriate licence. In that respect, they're no different from a shopkeeper, yet the industry has always tended to treat them as dubious risks."
Many insurer players came into this specialist niche some years ago to offset competitive pressure in the more traditional motor sectors. Their incursion helped force rates down and eventually most withdrew, leaving the specialist insurers to pick up the pieces.
Specialists reacted not just by raising premiums - access was restricted too, often solely to the high volume producers, where there was a reasonable expectation of profitable development. Zenith Insurance, for example, closed most of its previous taxi schemes following its management buy-out in 1999.
Managing director of Zenith's motor division, John O'Shea, says this period of the past was symbolised by simplistic rating structures and delegated authority and policy administration. These were discarded in favour of a sophisticated rating structure, available only to a small number of specialist brokers. "Good underwriting control, speedy collection and analysis of risk and claims data is the key. Late claims notification must be avoided," he says.
Control equals profit
Unlike other motor products, Zenith prefers not to place its taxi rates on quotation systems. It is also a paper-based transaction.
"It's one example where some duplication between ourselves and our brokers is no bad thing," says O'Shea. "Taxi underwriting needs a degree of control if it is to be profitable, so we check every proposal form, copy driving licence and bonus proof on an individual risk basis."
For brokers, credit control can prove the difference between success or failure. Most taxi operations work on tight cashflow and credit is often required. Firm procedures are essential when offering payment terms or instalment plans.
Short period policies are another response, with annual, half-yearly, quarterly and even monthly policies available. However, now that insurers have acquired more underwriting data than they ever enjoyed before, a strong connection has been found between poor claims performance and slow cashflow. That has led to a reluctance from some insurers to issue short- period covers, particularly monthly contracts. Others avoid these policies in certain niches - for example, in the unlicenced mini-cab market.
Newly accredited Lloyd's brokers Camberford Law have a scheme for licenced taxis. Placed with Groupama, it handles this business direct, within a dedicated department - there's no wholesaling or involvement with sub-agents. Managing director Richard Sheikh says all documents are produced and issued from the firm's office, with certificates of insurance created to fit in a cab's windscreen holder as required by licencing rules.
"Before we issue any documents, we acquire a proposal form and see a copy of the driving licence, copy taxi licence or badge, copy log book and proof of no claims discount (NCD)," says Sheikh.
Marketing to the rescue
Help for intermediaries left in the cold in the shrinking market may be marketing groups.
Key Choice is one such organisation for CSC system users. It set up KC Taxi, administered on its behalf by taxi specialists Marchant & Co, to help members who might find it difficult to place this business. It operates with an expanding panel of four insurers. All quotes are guaranteed within 24 hours or less and credit terms and direct debit facilities are available.
Several specialists have collated a database of the varying conditions imposed by the local licencing authorities. This enables the correct scope of cover to be applied to any enquiry. There is also close contact with those authorities. Peter Allen, of Allen Insurance Consultants in Hull, specialises in taxis and says they warn clients that if there is a default on a premium instalment, they are obliged to mention this to the local taxi authority. He emphasises the need to distinguish the differing types of client - basically the honest and the not so honest. In all cases, credit control is important.
"We insist on payment upfront or the completion of a direct debit mandate, with one quarter of the premium paid as a deposit to meet any time on risk charge, should there be a default," he says. "We use seven different suppliers and have the facility to transfer NCD from a private car policy. We're happy to extend our facilities to other brokers, subject to discussion."
While rates are slowly rising, moves to sell additional cover receive a mixed reception. The demand for added value in the taxi market is mainly directed at those features made compulsory by the licencing authorities, such as public liability for school runs and work on behalf of social services. Some local authority contracts require taxi drivers to take responsibility for their passengers' door-to-door safety. Personal liability cover for this eventuality is essential to fill any gap in cover that might arise away from the motor vehicle.
Otherwise, attempts to sell extra cover such as breakdown, loss of income, legal expenses, loss of money, and all risks cover for meter and radio equipment are not always successful. Such options have to be made discriminatory, rather than being incorporated within a standard package. Otherwise, premiums are no longer competitive.
Abused and misunderstood perhaps, modern taxi business is far from unplaceable. But as O'Shea points out: "The taxi account certainly continues to figure in our development plans for 2001 and beyond, but we will expand only when and if the time is right."
There are no specific figures for fraudulent claims in the taxi sector, but insurers continue to suspect there are increasing numbers of doubtful passenger injury claims. Such fraud is difficult to prove, with the burden of proof falling on the insurer.
One specialist intermediary was accused of issuing worthless policies from an unauthorised insurer. There is also evidence of staged accidents being targeted at specific insurers that do not possess the investigative power to follow these cases up. Fraudulent individuals can appear in several claims, swapping roles as passenger, driver or witness on each occasion. Some vehicles nearing the end of their MOT are deliberately set on fire. If the perpetrators burn themselves in the process, whether intentionally or by accident, an injury claim will be placed on the pretence that the vehicle caught fire.
It is widely believed the incidence of fraud is more widespread within the unlicenced sector, where the workforce may be more transitory.
Fraudulent claims have undoubtedly added to soaring claims costs, and various methods are used to combat this: