Client Communications
Rental Car Coverage - Business Auto Policy
Should I purchase the Loss Damage Waiver offered
by the rental agent when I rent a vehicle while on company
business, and instruct my employees to do the same?
This is a great question, and one that our customers ask
frequently. When you or one of your employees rent a vehicle
for business use while out of town, there comes that time
when you’re standing at the rental car counter and the
agent asks the inevitable question: “Do you want to
buy our loss damage waiver (or our insurance coverage)?”
Most loss damage waiver (LDW) fees are outrageous. Sometimes
they cost more than the daily rental fee itself. But are they
worth the additional cost? The answer may depend on your tolerance
for risk and inconvenience. You must decide if the extra cost
is reasonable, considering the potential for an uninsured
loss should something happen to the vehicle during the term
of the rental contract, and the resulting inconvenience of
dealing with the rental company and your insurance company
– or perhaps even your employee’s insurance company
– to satisfy the rental company’s demands.
First, you should know that the LDW is not actually an insurance
policy. It is a waiver of the rental company’s requirement
in the rental contract that the renter bring the vehicle back
in the same condition as when it left their lot. Most rental
contracts make the renter responsible for any
damage to the vehicle, including theft and weather-related
damage. When the renter purchases the LDW, the rental company
is removing that provision from the contract on a conditional
basis.
If you don’t purchase the LDW and the vehicle is damaged,
here are some of the costs for which you or your employee
could be held responsible under the rental contract:
- Cost to repair damage to the vehicle, or the full value
of the vehicle if it is a total loss
- “Diminished value of the vehicle – the difference
between what the vehicle was worth before the accident and
what it is worth after repairs have been made
- “Loss of use– the amount of money the rental
company loses on rental fees while the vehicle is out of
service for repair or replacement
- Administrative or loss-related expenses incurred by the
rental company, such as fees for towing, appraisal, and
claims adjustment, plus general office expenses for handling
the paperwork
Reasons to purchase the Loss Damage Waiver:
1. Your policy may not cover damage to the rental
vehicle at all.
Your policy does not cover damage to the
rented vehicle and related costs, UNLESS
the policy has been changed to cover vehicles rented by you
or your employees on company business (the “Employee
Hired Autos” endorsement), and you have purchased special
coverage (“hired auto physical damage” ). (Note:
not all insurers offer these coverages.)
2. Your insurance company may not pay the entire
amount demanded by the rental company.
When your policy covers damage to a rented vehicle, the amount
payable by the insurance company is the lesser of the “actual
cash value” of the vehicle or the amount “necessary”
to repair or replace the vehicle, minus the same deductible
that would apply if the damage was to one of your own vehicles.
In addition, some policies cover “loss of use”
with a daily limit (usually as low as $20 per day) and a maximum
limit (usually $600). Because of all these limitations, you
or your employee may become personally responsible for:
- The amount demanded by the rental company to repair or
replace the vehicle in excess of actual cash value”
or the amount “necessary ”to repair or replace;
- The amount of your deductible;
- The amount demanded by the rental company for loss of
use in excess of the daily and maximum limits payable by
your insurance company, if the company offers this coverage
at all;
- The amount demanded by the rental company for “diminished
value of the vehicle, even after the repairs are complete;
- The amount demanded by the rental company for administrative
or other loss-related expenses.
3. Your policy may exclude some electronic equipment.
Your policy may exclude loss to some electronic equipment
that receives or transmits audio, visual or data signals.
If you rent a vehicle equipped with a GPS receiver, for example,
your policy may not cover it.
4. Your premium may go up or your policy may not
be renewed.
You or your employee are driving an unfamiliar vehicle in
unfamiliar territory. If you or your employee has an accident
while driving a rented vehicle, and your insurance company
pays the claim, it may hold this fact against you –
with a premium surcharge or perhaps even non-renewal.
5. Your or your employee’s line of credit may
be adversely affected.
If you don’t buy the LDW, the rental company will probably
ring up an estimated damage amount on your credit card or
your employee’s credit card, pending settlement by the
insurance company.
6. You or your employee may suffer a huge inconvenience.
When you purchase the LDW, you or the employee can bring a
damaged vehicle back to the rental company, throw the keys
on the counter, and walk away. When you haven’t purchased
the LDW, you or your employee may have to spend a significant
amount of time dealing with the rental company and your insurance
company, and perhaps the employee’s insurance company,
as well.
7. Your personal auto policy (if you have one) or
your employee’s personal auto policy may be affected.
Most personal auto policies cover accidents involving vehicles
rented by you or your employee, even when the rental is solely
for business purposes. When you purchase the LDW, the personal
auto policy won’t be needed to pay for damage to the
rented auto. (Note: If the accident is your fault or your
employee’s fault, the personal auto policy may become
involved if the accident involves injury to other persons
or damage to other property. There is nothing you can do to
avoid this.) For more information on how the personal auto
policy responds to accidents involving rented vehicles, ask
us for a copy of an article on that subject.
Bottom Line: We recommend that you buy the Loss Damage
Waiver from the rental company.
Recommended Guidelines for Employers
Here are some guidelines for you to consider if employees
rent vehicles for company business:
- Instruct employees to include the company name, if possible,
on the rental agreement.
- If you have no tolerance for the risk of incurring the
potential uninsured losses shown above, or the means to
pay those losses, tell employees to purchase the LDW offered
by the rental company.
- Tell employees to report any accident in a rented vehicle
to you and to their own personal auto policy insurer or
agent.
This article was prepared and made available
to your agent by the Independent Insurance Agents of Texas,
which is solely responsible for its content. Please read your
insurance policy. If there is any conflict between the information
in this article and the actual terms and conditions of your
policy, the terms and conditions of your policy will apply.
The Independent Insurance Agents of Texas is a non-profit
association of more than 1,500 insurance agencies in Texas,
dedicated to helping its members succeed, in part by providing
technical resources that explain insurance policies sold to
their customers.
Client Communications
Experience Modifiers – Workers - Compensation
Policy
What is an experience modifier, how is it computed
and how does it affect my premium?
This is a great question, and one that our customers ask
frequently. The experience rating modifier is the one area
where an employer’s efforts can significantly reduce
premium cost.
Experience rating is the interaction of claims management
and insurance pricing. An organization that controls its losses
also controls its experience modifier and ultimately is responsible
for higher or lower premiums. Although the formula is quite
complicated, an understanding of the basic components will
assist you in minimizing the impact of losses.
The experience modification formula considers losses for
a three-year period, excluding the current policy period.
The “losses” are more than just the amount that
has been actually paid out on a claim. They are the “incurred”
losses, which also include the reserves that an insurance
company adjuster has estimated the loss will pay out in the
future, either in direct medical treatment or as indemnity
payments to the injured worker while he or she is unable to
return to work.
As an example, let’s consider that an experience modifier
for a risk is being calculated during 2006 for a policy that
will be written effective Jan. 1, 2007. Since the 2006 policy
is not yet closed (expired), the loss data is not available.
This one-year lag period allows the insurance company the
time to close most claims and more accurately estimate the
cost of the open claims that will continue for more than one
year. The three years that the experience modification calculation
is based on are the years that began in January 2003, January
2004 and January 2005.
In its simplest form, the experience rating calculation compares
the actual losses for the individual employer with the expected
losses for the average employer in the same industry and same
state with the same amount of payroll.
An experience modifier of 1.00 represents an employer whose
actual losses closely matched the expected losses for their
business. If the actual losses were greater than the expected
losses, the experience modifier would be greater than 1.00;
conversely a modifier less than 1.00 means that actual losses
were less than expected.
Since no two employers in the same industry will have the
same claims histories, the experience modifier calculation
is designed so that the employer with the greater claims pays
more for workers’ compensation. Through this system,
employers have a financial incentive to improve the safety
of the workplace. The chart below shows the significant impact
that the experience modifier has on the actual premium an
employer pays for insurance:
Manual
Premium |
Exp
Mod |
Discount/Surcharge |
Modified
Premium |
$62,106
|
.73 |
$16,769
Discount |
$45,337
|
$62,106
|
1.00 |
No
Impact |
$62,106
|
$62,106
|
1.43 |
$26,706
Surcharge |
$88,812
|
The last aspect of the experience rating modifier that impacts
the calculation is the frequency of claims. The formula places
a higher penalty on an employer who has 10 injuries costing
$5,000 each versus an employer who has one injury costing
$50,000. Although the ultimate expense may be the same, the
employer with one claim is considered a much better risk.
A history of frequent losses normally implies there are poor
safety standards in place and little management commitment
to improving safety. In Texas, as in most states, large claims
are “capped” so that the amount that exceeds the
cap is not counted at all in the calculation. The current
cap in Texas is $107,000. This capping process reduces the
penalty to the employer when there are “shock”
losses.
The examples below show the impact of losses on the experience
modification calculation as well as the impact of frequency
versus severity in the calculation.
Example #1 Hypothetical Account
Claims
History |
Claims |
Policy
Yr |
Actual |
Primary |
|
Under $2000 |
01 |
5,660 |
5,660 |
|
Under $2000 |
02 |
5,303 |
5,303 |
|
Under $2000 |
03 |
3,018 |
3,018 |
|
#51261701 |
01 |
72,848 |
5,000 |
Lost
Time Claim |
BJM3976 |
03 |
4,708 |
4,708 |
Lost
Time Claim |
BJM9986 |
03 |
4,708 |
4,708 |
Lost
Time Claim |
|
|
94,804 |
26,956 |
|
Premium Calculation |
Class Code |
3628 |
8742 |
8810 |
Mod |
Adj
Prem |
Est Payroll |
1,000,000 |
100,000 |
1,400,000 |
|
|
Divide/100 |
10,000 |
1,000 |
14,000 |
|
|
Prem Rate |
3.50 |
.75 |
0.36 |
|
|
Premium |
35,000 |
750 |
5,040 |
|
|
|
|
|
40,790 |
1.275 |
52,007 |
Example #2 - What if there had been no Lost Time
Claims?
|
Premium |
Mod |
Adj
Prem |
Example
#1 |
40,790 |
1.275 |
52,007 |
Example
#2 |
40,790 |
.80 |
32,632 |
Example #3 - What if instead of three lost-time injuries,
there was only one, but the total loss was the same?
|
Premium |
Mod |
Adj
Prem |
Example
#1 |
40,790 |
1.275 |
52,007 |
Example
#2 |
40,790 |
.80 |
32,632 |
Example
#3 |
40,790 |
1.120 |
45,684 |
Remember, experience modifiers are not arbitrary numbers
assigned by the insurance carrier; they are calculations based
on the employer’s actual losses. You can reward yourself
and your business by implementing safety programs that will
reduce losses.
This article was derived from an article
written by Jan Kearbey, CIC, CISR, CPIW, CWCP, Director of
Education & Production for Service Lloyds Insurance Company
of Austin, Texas, and was originally printed in Service
Lloyds Connection Volume II, Issue 3.
This article was prepared and made available
to your agent by the Independent Insurance Agents of Texas,
which is solely responsible for its content. Please read your
insurance policy. If there is any conflict between the information
in this article and the actual terms and conditions of your
policy, the terms and conditions of your policy will apply.
The Independent Insurance Agents of Texas is a non-profit
association of more than 1,500 insurance agencies in Texas,
dedicated to helping its members succeed, in part by providing
technical resources that explain insurance policies sold to
their customers.