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Reduced capacity in the taxi insurance market led to high premiums, with many operators finding it difficult to secure commensurate cover. Veronica Cowan looks at some of the drivers for change in the industry.
No matter where in the world a taxi driver operates, the fact that time is money and the work involves the carriage of people ensures that speed-related accidents will happen and personal injury will feature in many claims. Add to that the spate of staged accidents in the 1990s, and it is hardly surprising that the losses saw many insurers withdraw from the market.
The resultant reduced capacity made taxi insurance increasingly expensive and sometimes difficult to obtain. To provide a consumer perspective, Stuart Pessok, editor of the Licensed Taxi Drivers Association's trade magazine Taxi, comments: "The premiums are very high, mainly due to personal injury claims, and insurers penalise the cab trade. There aren't too many that will take taxi drivers, which is something our 7000 members complain about." One fleet operator in West Sussex observes: "Insurance companies charge a premium based on a taxi being a business, but pay out on the basis of it being a high-mileage vehicle. What do they expect - it's a taxi." He adds: "There is not enough choice, and insurance companies collude to keep premiums up."
Royal & Sun Alliance reported last year that it was not approaching taxis for business, and that position remains. Camberford Law inherited a scheme for taxi insurance in a company acquisition in 2001, which closed down a year after. Chief executive Richard Sheikh explains: "It was underwritten by Groupama, which, like us, had a change of strategy." Bill Morley, director of Clifton Morley Associates, who devised the scheme insists that taxis can be profitable, however. "It is a volume business that is compulsory and it is vetted. It is relatively safe if you underwrite the risk, but there is not enough bespoking."
Increased use
Stephen Mourton, managing director of broker Elite, part of the Milestone Group, notes an increase in the use of taxis by young people with more disposable income, and a greater willingness to spend it on services than the previous generation.
Norwich Union has traditionally been a significant market player in this sector and it has remained steady while new players, like Gibraltar-based Collinwood and Haven, are also procuring taxi business. NU's commercial motor underwriting manager Mike Smith says his company has between 20% and 25% of the market, with fleets, schemes and individuals. Mr Smith adds: "Our account is developing, albeit more in special schemes and bespoke arrangements with a few brokers, as opposed to off-the-shelf products." Former NU subsidiary Sabre wrote GBP9m in taxi revenue in 2003, according to underwriting director Patrick Swords, with the announcement of record profits for 2003 attributed to private motor price stability. He explains: "We do not insure taxi fleets but we do cover individual drivers, both public and private."
So, with taxi business accelerating, one of the drivers for change has been the general softening motor market. In the mid- to late-1990s, insurers were making significant losses so the big players were reluctant to come back in, although those still in the market are making good profits, according to Mr Mourton. He says the issue was not so much a shortage of capacity as some insurers seeing the chance to make a quick profit and "dabbling without committing to the market". Making the point that in rural areas there is lot of competition, but not as much in more risky areas, he notes that taxi premiums rose dramatically in the 1990s - some by as much as 300% a year - but levelled out at the turn of the century. "Average premiums have dropped - albeit not significantly - in the past two years," he says.
On the other hand, Orion Direct's consultant, Duncan Aspden, reports premium rates dropping, in some instances by about 25% in the past six months. He attributes much of this to new entrants, but says: "Insurers come and go - it goes in cycles with taxis - and this can have a destabilising affect on the market." This is echoed by Damian Walsh, a partner with wholesale specialist broker Taxi Fleet Plus, who warns of the risks of new entrant competition driving premiums to unsustainable levels so that there is not enough to sustain losses, attracting the wrong business.
Niche market
Mr Walsh explains that there is little consumer loyalty with taxi drivers, who will follow the price and switch insurers, as will brokers. Few insurers deal with taxi drivers or operators direct in what is, essentially, a niche market. Mr Smith's comment that "specialist brokers bring greater understanding of the taxi market" will be music to the ears of Mr Mourton, who reports a tendency to allow other brokers in. He adds: "You need to be a specialist to keep a tight rein on the market. We work closely with underwriters and will look at rates and advise insurers to help keep them in it." As well as understanding the market, specialist taxi agents have a close relationship with licensing authorities, notes Mr Swords.
Vehicles and drivers in London are licensed by the Metropolitan Police, the licences being issued by the Public Carriage Office. Taxi operations outside London are controlled by local authorities under the provisions of various acts of parliament and by-laws. Regulation is an issue, real or perceived, and concern about minicabs has resulted in one of the most common questions asked of the Department for Transport as being: "How can I determine whether a minicab is properly licensed and safe?" This prompts the issue of whether, from an insurance perspective, the risks vary between public and private hire.
Mr Swords says black cabs are only slightly better risks than private hire, while Mr Smith sees them as better regulated and tougher on conviction records. He says local authorities are inconsistent on such issues as drivers' medical conditions and age of vehicles and would like to see more standardisation.
However, Keith George, managing director of specialist wholesale broker Marchant & Co, which sells the Spectrum taxi scheme to around 1300 brokers, took the initiative of issuing a questionnaire to all licensing authorities in 2004. "There was not much difference between their approaches to licensing public and private hire vehicles outside London but, historically, everyone in the industry had taken a different view." He adds most insurers do not differentiate on rate and Marchant will now rely on the results to persuade others that there is no need to.
At present, local authorities in England and Wales, outside London, can limit the number of licensed taxis allowed to operate in a local area.
Last November, the Office of Fair Trading said these restrictions were not justified and called for the government to remove local authorities' power to limit licences. It also called for best practice licensing guidance so local authorities could consider whether their quality standards, which varied greatly within and between districts, were proportionate. In March 2004, the government decided not to impose a legislative solution but has asked local authorities to review any taxi licence restrictions by 31 March 2005 and, where they cannot be justified, lift them. Mr Smith says: "If the cap on the number of taxis was removed, it might dilute quality; it could also drive out illegal operators."
Telematics
While taxi drivers in the UK are sedate in comparison with those in Continental Europe and New York, as time is money, how can they be persuaded to apply the brakes earlier and adopt risk management strategies? Mr Smith points to one initiative - telematics - black-box technology in the cab to monitor driver activity. "It enables taxi operators to control the hiring price and driver behaviour," he says, while Thomas Hallauer, editor of Telematics Update magazine, explains: "Insurers are interested in it being installed in fleets to make them safe and control the speed at which the vehicle is travelling. It tracks the location of the vehicle as well as receiving information from the engine, such as braking." He adds that, because it also gives information about the vehicle immediately before an accident, it can be used to assess the crash and whether it actually happened, so it is a useful anti-fraud device.
As to other initiatives, broker Cabs Insurance 2000 introduced a compulsory driving scheme and developed a profile of the taxi client to gain the confidence of the insurance industry. "Clients and insurers resisted initially," explains chief executive Nigel Hendry, "but both can now see the benefits." Mr Walsh sees good driver selection as the major force behind successful risk management control, arguing that it results in fewer claims and even makes the cost of actual claims lower. "We would want to know about drivers and try to look at the business but also see the clients on an individual level. And 12 months ago, we launched a risk manager guide but we cannot interfere with their business," he says.
Mr Mourton perceives a claims culture change, observing: "The whole taxi industry has now learnt that it can not just claim for everything. There was a predominance of personal injury claims that caused problems. Some were fraudulent, but it caught up with them, and they now realise that claims can cost them dearly."
Fleet coverage
Insurers are less keen on fleets primarily because they cover all the cars without knowing anything about the drivers. "The main challenge facing fleet operators is to be able to keep claims down so they can keep insuring their cars as a fleet," notes Mr George, who explains that fleets are traditionally written on an 'any driver' basis, so the insurer does not know the driver's record.
His firm is administering Zenith's net-rated, named driver policy, Taxi Fleet, launched last year. An automated PC-based quotation system, providing access to instantaneous quotes without the use of electronic data interchange quote engines, Mr George says the insurer receives details of the drivers but covers them to drive all the fleet cars.
Mr Aspden says Orion Direct's fleet business is worth about GBP2m a year, underwritten mainly at Lloyd's and through Collinwood and Haven. His company has recently been appointed broker for the Driving Standards Agency, which conducts the taxi drivers' test on behalf of several councils. "We are offering a scheme for those who did the test and are hoping to receive a special rate from insurers for those drivers."
Another intermediary keen to pick up more business is Budget Taxi Insurance, which has recruited Rob Leyland from rival Swinton to head up its new taxi unit, officially launched on 1 July. Mr Leyland explains: "Budget insured a small number of taxis before, but it has been proven that setting up a specialist unit and training staff is better. It is more focused in a niche market."
GOVERNMENT ACTION PLAN
A government action plan in response to the Office of Fair Trading's report into the UK market for taxis and private hire vehicles calls for the following:
- local decisions to restrict taxi numbers to be made with consumer interests in mind;
- decisions on quantity controls to stay with the local district;
- increased competition in the taxi market;
- best practice guidance for licensing authorities on quality and safety standards; and
- better information to enable consumers to negotiate lower fares.
Source: Department of Trade and Industry.
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