Supply, Demand, and the Cost of Insurance

[Tow411]

Topic Originally Created by Rod VT in January of 2004:

 

One bodyshop/garage in my town just dropped his insurance on his wrecker because he didn't run it enough (or profitably enough) to make it worthwhile (especially when he was in the middle of a repair). There are rumours that another tower not too far from me isn't going to be able to renew his insurance due to too many claims. Dougie says he is having a hard time finding anyone who will write him insurance on a start-up company.

My question is: will the high cost of insurance be the downfall or the salvation of the towing industry? (no offense meant to you Doug). What I am thinking is that rates are low, due to too much supply (of towers). If the high cost of insurance eliminates "marginal" operations, won't that permit a corresponding increase in rates?

I expect that it will be a cyclical thing, and that when rates establish themselves at a higher level, supply will eventually catch up to demand again. In the meantime, solidly established businesses should soon be able to start commanding higher rates!

Any thoughts from you old timers with decades long perspectives on the supply and demand thing?
Rod

 

Rudy Smith said:

Good post Rod.
The fact is that the upward pressure on tower’s rates due to fuel, insurance & to a lesser extent labor has been having an effect for the last 2 years. The adjustments are very gradual and not seen by most towers.

Although a 4% rise in price is not enough for a tower that is working at or below breakeven to survive, that same 4% is huge when looked at in terms of our current economic inflation indexes. As the marginal operations fall out there are fewer towers to service the same demand and that in turn puts additional upward pressure on price granting the stronger companies more than 4% over time.

Smart business people watch the inflation indexes closely and adjust prices in small increments to protect their profits each & every year. If you wait on the others, you could find yourself in the group that fails. On the other hand if you act to early or over raise price, you could loose too much market share and could still fail.

To complicate it more, you have to watch transportation & energy indices because those are the closest indicator of towing cost inflation and those sectors always lead general inflation. You are feeling it now but it started in early 2002 and won’t show up in general numbers until after the Presidential elections.

By the time that the consumer price index starts rising, towers have already been in a cost inflationary period for over 2 years. If you have not already raised prices you have lost profit margin if not created overall losses.

Look for more rapid inflation following the elections in the fall. To stimulate the economy and win reelection, the Republican controlled Fed is artificially keeping inflation in check until after the election. To do this they have had to allow the Federal debt and ”balance of payments” to climb. The day after the election, no matter who wins, the rules of the game will change. Greenspan will take the brakes off of inflation in order to bring the Federal debt under control. This will put even more upward pressure on tower’s costs and in turn more pressure on price.

Supply & Demand rules all economies, everywhere, all the time. Even in our little towing industry.

ROD
Yes to Salvation.
Yes to increased rates
NO I AM NOT OLD!
Rudy
 

mid-rivers towing said:

Rod i know you ment know offence and wanna say thankyou for making sure i knew that i know this is off topic but i wanna be able to help someone who may need insur and cant find it progressive will write just about anyone for towing insurance but they can be rather pricey i was only paying aprox $3500 a year for towing repo and full coverage insurance on one truck wich may sound like a lot but some quotes i was gettin was much higher than that then when i would go to get insur form the higher quoted places they would say oh we are sorry you dont meet are qualifacatons (not in biz long enough) you would think it would be illeagle for all these companie to be pulling this must be in biz for so long beings the govt madates we must have insur. beings it all goes back to my orignal post of how can you get insurance without being in business and how can you be in business for 3 years without insurance if i was an insurance co and saw someone come to me wanting to insur them and they hadnt had protection for 3 years i would wanna jack up there rates due to how unsafe are they if they dont even have insurance i know that last comment might not have made scence but im just trying to figure out why and how these people can get away with doing the must be in biz for so long stuff.......anyone need a gently used soapbox? im through with mine for a while

Doug,

 

Unknown Member said:

Hey Doug,
I'm going to borrow your soapbox, if you don't mind, for just a minute! And Rudy, I believe your right about your economic predictions. It doesn't matter who goes in, it will change drastically. Rod, it seems to me that this is a double edge sword. If rates rise dramatically, then yes a lot of people will be put out or prevented from coming in. But, if costs rise too far, and rates increase substantially, then there will be people or investment concerns that will begin to eye the towing business as one big apple tree. These are people that don't know the front from the back of a towtruck. But, they'll go in, buy existing tow companies, and then, from a office a 1000 miles away, some college graduate bean counter will come up with all these wonderful ways to save money. Sound familiar?? Haven't been involved very deeply with the towing business (roadwise, anyway), but hasn't this industry already seen something like this a few years ago? Besides the more it costs to play the game, the less players there will be. That is the trouble now, we've gotten away from the "Mom & Pop" concept. That is why there is no customer service and we have all just become a number to them. Most, if not all, the owners on this board, are directly involved with their business and have many years of experience. Their involvement, knowledge and ways of doing business gives their companies the individualism that is so desperately needed in all businesses. There is a certain amount logic in what you say, Rod, it's just that I don't believe it would be reined in before it got out of hand. I don't mean to start anything here, I'm just giving my observation in regards to the question and I most certaintly respect your thoughts and opinions. And, I like that knuckleboom loader.

Alright Doug, I'm going to give the soapbox back to you. Thanks for letting me expound.
John

 

McRae Towing,

Rod,
Most likely this body shop has not been charging enough and offering free towing to feed his shop with work. He has probably found so many towers will tow for him cheaper than he can and he can do better staying in the shop.

People like this come and go in our industry because they can. He has to keep up his garage keepers policy anyway so the cost of insuring the tow truck should not be a factor.

The best way to stabilize the number of tow services is to have minimum standards and requirements for towers to meet. The tow company's need to be registered and the drivers need to be citified before things will change.

I have been watching this cycle for over 25 years. As long as anyone can do this work with out paying a minimum entrance fee to get in it will be the same roller coaster we have been riding and only strong stomachs will survive.
Thanks, George

 

Oklatom said:

We are approaching 1,000 members of this board. Is that not a substantial number of towing companies represented to get a discount break on insurance? Is there anyone there that can run with that idea and get us an agent that will work with us? In 5 years I have had no claims, yet my insurance cost has gone up close to 300%

 

Rod VT said:
Interestingly, Vermont is the captive insurance capital of the U.S.! We have very favorable laws, just like Delaware is the corporation capital. It can be done nationally easily enough, no individual state registration is needed if it isn't available to just anyone, the offerings have to be part of a "captive" market.
It boils down to towers insuring themselves, and being responsible (as a group) for everyone's losses. You have to put up about a half a million dollars to get started. The intersting part is when them's that's in start deciding who else gets to come in, and who stays out....????
I don't think the captive could take on the workman's comp portion but maybe most everything else.

John,
I wish you would mean to start something here. This is our place to discuss national issues.
Regarding consolidators forcing out the Mom'n'Pop's, it's a good issue to consider but since it failed big time a few years ago, it's doesn't seem real likely to happen again. Miller won't be trying again any time soon, and they were the only ones who might have had an edge financially over independant operations (cheap trucks).

Doug,
I am sorry about your "Catch 22". Maybe if you hold off a little while rates will climb enough for the numbers to be more possible for you.

Rudy,
Thanks for your insightful post, even if you aren't old. Maybe you would be willing to take on reporting on the indexes to us here on the board so we would know when to nudge our prices. It's a little hard to watch the markets when you are a small show and your choices of activities come down driving, eating, spending some time with family, and sleeping (if you are lucky).

Thanks all,
Rod

 

Doug Fitzgerald said:

Here is something that would help small towing co's like me if the ins co's would insure us by the amount of drivers (myself 2) and let us have more than 2 trucks but the insurance rotate to the spare truck,4X4 truck Large Truck Etc.

To run a good small towing Co We need 2 Med Duty 1 Hd 1 Flatbed 1 4X4 etc
I can afford more equipment but can't afford the insurance on those trucks that will only get used once a week or so.

The ins co would have all truck vins on file and what ever truck we got in would be insured.

They would have to have a clause that ONLY my 2 drivers could drive.

what do everyone think about this ?

 

Hartland Service said:

Rod,
In theory yes the stronger company should be able to command a higher tow ticket for similar service provided in the past.

However, with the majority of the light duty market being price controlled with Motor Clubs, I do not anticipate a windfall.

Also, in terms of the retail segment for MVA's, the insurance industry will work even harder to get the casualty out of the yard of the initial tower, in an attempt to reduce costs.

The general public, still needs to be educated about towing and recovery costs, as they still expect the service to be provided with todays modern methods and equipment at histories rates schedules.

So in many ways it is a two sided sword........
Jeff

 

Unknown Member said:

I don't know the answer to the problem of rising Towing insurance costs,but I have seen the results of rising malpractice insurance rates firsthand,Private Medical Practices in this area are dropping like flies! The main reason is insurance costs.As far as percentages go,I don't think the Tow Industry is far behind,I would expect to see some of the Tow Companies closing up for the same reasons.You can only raise your rates so much,flatbed car trailers and car dollies still rent for basically the same prices they used to and I have been seeing a lot of them on the road lately.

The Insurance companies are quick to point fingers and blame anything from "lawsuits" to "rising costs of business" It strikes me as odd that the majority of the insurance rate increases took place just after the Sept.11th tragedy (where insurance companies lost major $$$) and the Major Losses suferred in the Stock markets (where insurance companies also lost major $$$)

 

brian leibos towing said:

It would be great if some vigil anti would start blowing holes in some of these major insurance companies front doors until they saw it our way. I can see paying stiff rates if you had alot of claims. But as far as I'm concerned what do you call paing $7500 year just to keep 1 truck on the road? without any accidents... RAPE! The same thing one of our customers would say if you tried to charge them $75 bucks to tow them less than a mile. Lt Duty Rate And people wonder why things blow up! LOL Brian

 

THTDON aka Don 29 Years said:

Doug, here in MA, we have a movable repair plate, rather than a commercial registration. I currently own 8 trucks. But I have 5 repair plates. And there are five of us, so we each have a plate. I use my plate on whatever truck I'm driving, although I seldom actually move my plate. I have four tow trucks and four flatbeds. The four flatbeds are used daily, as is the tow truck that I drive. That leaves a one ton Chevy wrecker, a Chevy 3500HD wrecker, and my International medium duty wrecker. These trucks are paid for long ago, and I keep them as spare trucks. But at least I am not paying for them to be on the road.

 

 

Doug Fitzgerald said:

That is great Don http://www.tow411.net/images/emoticonthumb.gif

I wish we had that here in Tx

Doug http://www.tow411.net/images/emoticondriving.gif

 

Jeeper1 said:

You should here what the two major players here are "Self Insured" What the H_ _ _ does that mean! If someone trys to get you for a driver making a ding in your bumper - they have to take them to court - The real insured companies have to deal with it.......I just don't get it.

Does anyone else really understand how they can do this and still be on for city/county police towers, along with other major contracts?
Laurie

 

annettemcd said:

Laurie,
I would think that if the requirement is $300,000 (as an example) worth of insurance, then a self-insured company would have to prove that, if there was a claim against them, they would be able to pay $300,000. Without that proof, they should not be able to be on rotation.

 

 

 

[goodmichael]

Until there is a set, agreeable, enforceable standard on operators insurance will continue to rise. An agent told me recently that the totality of the circumstances are looked at when rates are set. If one has a deck truck that will transport one on the bed, and one on a wheel lift, there is a potential for three environmental claims. Four if you consider a strucn by vehicle. 

Take a good look at who is being employed in this industry. There are some great, outstanding companies in this industry. There are many questionable ones, and there are som ed that are just unsafe. You as a reputable, safe, conscientious business entity support the dregs of the industry, as the losses are pooled together as far as the industry is concerned. 

I would propose that companies who do the right thing as a mantra, invest in proper equipment, diligently maintain equipment, are highly selective in hiring, training, and employee development, have a safety plan that is workable, attainable, and practiced not just written down on paper  band together and solicit bids for a premium rate on insurance.