Taxi and limousine market catches a good fare with sound underwriting

Anyone who has been in a large city knows the importance of taxi and limousine services. Taxi drivers and chauffeurs help passengers get to and from their homes, workplaces, and recreational pursuits such as dining, entertainment, and shopping, as well as to and from business-related events. These professional drivers also help out-of-town business people and tourists get around in unfamiliar surroundings.

These professional drivers also make a good insurable risks for agents and brokers commited to delivering sound underwriting results for their carrier partners.

So, who’s driving?
Taxi drivers pick up passengers by “cruising” for fares, prearranging pickups, and picking up passengers from taxi-stands in high-traffic areas. In urban areas, the majority of passengers flag down drivers “cruising” the streets. Some drivers transport individuals with special needs, such as those with disabilities and the elderly. These drivers, known as para-transit drivers, operate specially equipped vehicles designed to accommodate a variety of needs in non-emergency situations. Although special certification is not necessary, additional training on the equipment and passenger needs is required to ensure the security of the passenger.

Chauffeurs operate limousines, vans, and private cars for limousine companies, private businesses, government agencies, and individuals. Chauffeur service differs from taxi service in that all trips are prearranged. Many chauffeurs transport customers in large vans between hotels and airports as well as bus or train terminals. Others drive luxury automobiles, such as limousines, to business events, entertainment venues, and social events. Still others provide full-time personal transportation for wealthy families and private companies.

Full-time taxi drivers usually work one shift a day, which may last from 8 to 12 hours. Part-time drivers may work half a shift each day, or work a full shift once or twice a week. Drivers may work shifts at all times of the day and night because most taxi companies offer services 24 hours a day. Early morning and late night shifts are common. Drivers work long hours during holidays, weekends, and other special times when demand for their services may be heavier. Independent drivers, however, often set their own hours and schedules.

Many taxi drivers and chauffeurs are lease drivers. These drivers pay a daily, weekly, or monthly fee to the company allowing them to lease their vehicles. In the case of limousines, leasing also permits the driver access to the company’s dispatch system. The fee also may include charges for vehicle maintenance, insurance, a deductible to apply for any accident the driver may have in the company vehicle and a deposit on the vehicle. Lease drivers may take their cars home with them when they are not on duty.

Underwriting the risks
Taxi drivers and chauffeurs held about 188,000 jobs in 2004. About 27 percent of taxi drivers and chauffeurs were self-employed.

Over 90 percent of taxicab drivers and 50 percent of executive sedan and limousine drivers are independent contractors. Because so many are independent contractors, the industry must maintain a database of individuals to prevent excluded drivers from one taxi or limousine company from working for another company. Most insurance carriers require that all drivers be reported and underwritten in order for coverage to be provided.

Local governments set licensing standards and requirements for taxi drivers and chauffeurs that may include minimum amounts of driving experience and training. Many taxi and limousine companies set higher standards than those required by law. It is common for companies to review applicants’ medical, credit, criminal and driving records. In addition, many companies require applicants to be at least 23 years old, or higher than the age typically required by law.

Minimum liability limits, including not only liability limits but also UM/UIM limits, for taxis and limousines are most often established by municipalities or port authorities. These authorities may also limit the number of companies which may be permitted to operate at locations such as airports or other port authorities.

In addition, after Sept. 11, 2001, the U.S. Treasury Department produced the Specially Designated Nationals List (SDN) which requires that for each cab or limousine risk written all drivers and the named insured must be cross-checked against the known “terrorist” list. A fingerprint screen must be done of findings and made part of the underwriting file of the insuring company.

Driver requirements
Persons driving a taxicab or a limousine first must have a regular automobile driver’s license. Usually, applicants then must acquire a taxi driver or chauffeur’s license, commonly called a “hack” license.

Some states require only a passenger endorsement on a driver’s license while others require only that drivers be certified by their employer or carry a commercial driver’s license with a passenger endorsement.

While states set licensing requirements, local regulatory bodies usually set other terms and conditions for limo and taxi companies. These often include requirements for training, which can vary greatly. To qualify through either an exam or a training program, applicants must know local geography, motor vehicle laws, safe driving practices and relevant regulations. They must display some aptitude for customer service.

Some localities require an English proficiency test, usually in the form of listening comprehension. Applicants who do not pass the English exam must take an English course in addition to any formal driving programs.

Other classroom instruction may include route management, map reading, and service for passengers with disabilities.

Taxicab or limousine companies should not give potential employees a temporary permit allowing them to drive before they have finished the training program and passed the test. Carriers typically require driver applicants to complete the licensing process before operating a taxi or limousine. All drivers must be reported to the insurer prior to driving as unreported drivers may result in direct notice of cancellation of the insured’s policy.

Some taxi and limousine companies give new drivers on-the-job training. This training is typically informal and often lasts only about a week. Companies show drivers how to operate the taximeter and communications equipment and how to complete paperwork.

Other topics covered may include driver safety and the best routes to popular sightseeing and entertainment destinations.

Many companies have contracts with social service agencies and transportation services to transport elderly and disabled citizens in non-emergency situations. To support these services, new drivers may get special training in how to handle wheelchair lifts and other mechanical devices.

Driving is a privilege and in today’s litigious world, getting behind the wheel can all too easily put a business out of business.

Bob R. McFall has been in the insurance industry for 35 years and is the founder of McFall General Agency Inc., a general agency and surplus lines broker serving contracted retail agents in Oregon, Washington and Idaho.