Eric Jarvis, CEO of Knight Insurance Group, filled me in on the moving parts of the insurance industry and how it has been affecting-and will affect-car rental. Rates are very competitive now, though that may change, says Jarvis.
Jarvis explains that during the recession, private equity and hedge funds were looking for places to put their money other than the stock markets, low-return bonds or risky real estate deals. So they invested in the insurance industry. To make use of this infusion of capital, domestic insurance companies went looking for more business, especially for relatively high-margin, niche businesses such as car rental, trucking and livery.
This brought more carriers to the market, but, at the same time, the economy has reduced the number of potential customers. The majors are self-insuring more as well, which creates less demand for fully insured solutions. This high supply and low demand has dropped insurance prices.
Jarvis advises the small RACs to shop the market to take advantage. "Talk to three or four brokers or providers. Make sure you're not missing what's happening in the marketplace," he says.
Jarvis expects to see a continued softening of rates for the next year, absent a major natural catastrophe. However, Jarvis points out that the recent quarterly earnings for one major insurance company are lower than forecasted. Insurance companies that are no longer profitable on the underwriting side will be less attractive to private equity and hedge fund money. That would reduce supply, and as the economy improves and drives demand, rates may start going up again.
"It will be a question of whether or not the capacity will be there," says Jarvis.