Insurance costs are top of mind for waste operators today. Finding ways to mitigate some of these costs while retaining adequate coverage requires professionals to do their homework to find the best program for their organization.
Waste Today spoke with Lauren Fronczek, a senior marketing manager at Richfield, Ohio-based National Interstate Insurance Company, about the company’s WasteCap group rental captive and what companies need to know to find an insurance solution that makes sense for their needs.
Waste Today (WT): What is WasteCap and why was this program conceived?
Lauren Fronczek (LF): WasteCap is a homogeneous, group rental captive that insures waste and recycling operators throughout the country. At National Interstate Insurance Company, we have been offering captive solutions for over 20 years. Specific to waste and recycling operators, we identified a need in the marketplace and launched the WasteCap program in 2013. Really good operators were (and still are) tired of the traditional insurance marketplace. Insurance carriers entering and exiting year after year and the uncertainty of knowing if they would have an insurance renewal has caused a lot of unrest for industry participants. Ultimately, WasteCap was created from a need to provide both an innovative and stable insurance solution to best-in-class waste haulers and recyclers, and it is comprised of progressive operators looking for a new way to finance risk.
WT: What does the typical participating company look like—is there any common theme or characteristics?
LF: All of the operators are in the waste and recycling industry and have a strong commitment to safety. We have operators from the East to West Coast and everywhere in between. Members range in size from 25 power units to over 250 units. The one thing that is constant is their willingness to improve their safety practices and bet on themselves. Safety culture is apparent in our operators and they continually strive to get better. A few words that come to mind that describe our members are innovative, accountable, entrepreneurial, forward-thinking and inquisitive.
WT: Who is eligible for coverage? Who does this program make the most sense for?
LF: While certainly not for everyone, captive insurance, also known as alternative risk transfer insurance, is an option that provides the best of both worlds for the proactive organization: a palatable level of risk that oftentimes includes a defined best- and worst-case scenario, allowing organizations to take advantage of a favorable claims experience. Captive programs can be a daunting proposition, as there are a number of varieties and options, but with a little analysis, the concept can be readily digested. While all captive programs differ, customarily, a portion of the insured’s premium is set aside in an investment account that functions like a checking account where losses up to a certain level are taken from the account as the losses occur. If there are extra dollars in the account after the expiration of an accounting cycle, those funds may be returned to the policyholder. Conversely, if losses exceed the amount in the fund, the policyholder may need to contribute additional funds. The most common captive approach for medium-sized operations is to come together with like-minded safety-conscious companies to share in that risk and reward. This symbiotic relationship where the captive members share in risk and reward creates alignment with the insurance carrier and agent that is not typically present with many other options. Creating this alignment where the policyholder and insurance carrier both win and lose together is a powerful tool. As more and more safety-focused operators opt-in to this approach, those that are left in the traditional marketplace are forced to subsidize each other.
WT: How does WasteCap help operators regulate expenses while still allowing them to receive comprehensive coverage?
LF: WasteCap members take on a palatable level of risk that is customized to their operation. Members band together to share risk and reward, creating their own exclusive insurance group and insulating themselves from poorer operators and the market. Within the captive, National Interstate is able to offer auto liability, auto physical damage, general liability and workers’ compensation coverages. In addition, we are able to offer guaranteed cost insurance on other lines of coverage that may be needed, including excess liability.
WT: What are some of the other overall benefits of the WasteCap program?
LF: The benefits of captive programs include a closer relationship with your insurance carrier, long-term control over your risk financing, and ideally, a removal from the swings of the traditional marketplace. Captives may also come with an increased level of servicing and safety focus that raises the performance level of all risk-takers. The potential downside consideration for this approach includes a higher time commitment to your insurance program, increased safety expectations, and the potential to pay additional premiums if losses exceed expectations. There are a number of options to consider under this scenario, so your insurance agent will need to be well-versed and able to outline the differences between rental versus owned programs, group versus individual, homogeneous versus heterogeneous, and so forth. While they may seem complex on the surface, alternative risk transfer programs may provide long-term control and stability while allowing insureds a palatable level of risk with the peace of mind of having a defined worst-case scenario.
WT: Do you think participation in WasteCap has helped operators be more mindful of safe operations?
LF: Without a doubt. Most operators improve with the help of the variety of tools and resources they have access to with National Interstate. And being in the group may change an operator’s mindset as they have some “skin in the game.”
Members have access to an exclusive risk management website, which serves as a one-stop shop for safety resources ranging from prepackaged safety meetings to training videos to SAFR, our proprietary defensive driving program. We also have relationships with many vendors, which gives our policyholders access to affordable training from different providers, including telematics, physical ability testing and defensive driving vendors.
Members are invited to attend safety workshops during the year, where they can learn best practices to improve safety and compliance culture. We offer collaborative on-site visits from our in-house loss control team whose goal is to work together to find areas of improvement. Our members have a grading scale that they are all ranked on. While members don’t know others’ scores, they do know where they fall within the group. No one wants to be at the bottom of that list, and it fosters a little friendly competition.
WT: What do you say to operators who are fundamentally concerned with their premium costs?
LF: Insurance is one of the largest expenses waste and recycling operators face, so why not explore different options throughout the year? I don’t know many people who enjoy going through their insurance renewal, but being educated is key. I encourage policyholders to work with their insurance advisor to find different solutions than the status quo and to start the discussion six to nine months before your renewal. WasteCap is best-suited for operators who appreciate long-term control over unpredictable insurance pricing.
Operators that bury their head in the sand will be left with high rates and limited options. Those that are proactive will find a place on the spectrum of risk and reward that is appealing and palatable for them.