Small, Midsize Cos. Crash & Burn On Collision Waivers

<B> Small, Midsize Cos. Crash & Burn On Collision Waivers</B>

By Lynn Woods

While travel managers at large corporations have either negotiated car rental insurance into their rates or worked with their insurance risk managers to implement alternate coverage, a surprising number of mid- and small-size companies are throwing money away by having their employees simply purchase the collision damage waiver at the counter, according to Ed McArdle, a car rental consultant at E&E Consulting in Coconut Creek, Fla.

With CDWs ranging in price from $9 to $20 a day (and with the lower-priced option in some cases covering only a portion of the car's value), the cost of paying for coverage at the counter can significantly boost a company's total car rental expenses.

Particularly at risk are "those companies relying on travel agents, most of whom make their money on turnover of transactions and are so swamped that they don't go to the client and say, 'you're doing 300,000 rentals a year, let's negotiate the insurance with the car rental company,' " said McArdle. "If your company does a lot of travel, you've got to negotiate. Companies should go to their supplier and say, 'I'll give you 300,000 car days, but in exchange I want to decline the coverage on CDW and have a $1,000 deductible. And instead of having $15,000/$30,000 of state minimum liability coverage, cover me for $300,000 across the board."

Some corporations, however, are investigating alternatives to having the car rental company pick up the insurance tab to reduce their rates. "More companies are looking for a negotiated price without the insurance," said John Johnson, vice president of sales at The Hertz Corp. "Companies are looking at how they can reduce the supplier's cost to improve their rate. Many have their own fleet of cars, and most have insurance or are self-insured," which might mean they're already covered.

Another option is checking the corporate credit card to see whether CDW coverage is included. While the perk is not included on American Express corporate cards--Amex offers the coverage as an option costing $4 per rental per day--secondary CDW coverage is a free benefit of the Amex small business card.

All commercial Visa cards and MasterCards--including purchasing cards--provide primary car rental insurance. A tiny percentage of the issuing banks might offer additional insurance enhancements. The Diners Club corporate card also includes the benefit, which is extended to eight-passenger minivans.

Paul Zielinski, business travel manager at Dow Chemical, said that Dow's implementation of a new Visa procurement card, which includes collision-damage coverage, was causing him to rethink the company's traditional means of coverage. "We've had car rental collision and liability as part of the negotiated rate, but with collision covered on the card, we're double paying. We're paying $1 or $2 extra a day for a feature we can get for free."

Using corporate cards to get the coverage is definitely a trend among the smaller-company accounts at Dollar Rent A Car, triggered by the credit card companies' offering of small business cards that include car rental collision, according to Mary Tenkle, Dollar's executive director of national sales. Estimating that from 15 to 20 percent of Dollar's corporate accounts negotiate insurance into the rate, Tenkle said that a far more common scenario is for firms "to work with us to get a couple of dollars off the rate and instead get covered on their card."

Yet other travel industry executives said that getting the collision damage waiver included in the rate had certain advantages. "Car rental companies can deal with the administration of a claim because we have a claims department," said Bob Briggs, president of National Car Rental. In contrast, settling a claim with a credit card company may take longer and require more work from the corporation.

And a Calif.-based travel manager noted that "you can be nickeled and dimed to death, without having the insurance covered as part of the rate. When it's covered under an agreement the car rental company forgets the little things. But when it's not, you'll find yourself getting billed for every little ding."

To assess how they can get the most comprehensive coverage at the lowest cost, travel managers need to consult with their company's risk management staff. Car rental execs said many travel managers come to the table ill-informed about their company's past track record regarding car rental insurance claims.

"Most travel managers don't know their company's accident history," said Briggs, adding that a car rental firm can accurately assess the cost of providing the benefit when it has access to data for the past three to five years. "Until we have a track record, it costs us more to take on a company's risk." In some instances the car rental company can obtain this information from the previous vendor, though not always.

Briggs added that many corporate travel managers don't check the ability of their drivers to drive well. National checks driver's licenses in some states, which has on occasion red-flagged corporate travelers with horrendous records. "Some corporations have taken on the liability of their drivers by providing us with a letter for that driver," he said.

Corporations need to look at all the options carefully, paying particular attention to the fine print. "Corporate card coverage might be secondary [meaning it kicks in only after other applicable insurances are used], and it might not cover property damage," McArdle said. "The risk manager has to look at the company's interlocking coverage and the level of risk the company is willing to take."

Once the agreement is signed, the car rental companies track the corporation's claims and usually, if they go beyond a certain "normal" threshold, alert the company to a problem before the contract has expired. At this point, a company might want to respond by instituting a safe driving program.

Even when they're covered by the car rental vendor, however, companies are still at risk in instances where the traveler rents a car from a different vendor--if, for example, a car is not available from the preferred vendor. To help reduce the chances of taking on such risk, Neil Abrams, president of Neil Abrams Associates Inc., a car rental consultancy in Purchase, N.Y., advises travel managers to try to negotiate last- minute availability into the rate.

"We guarantee a car for some corporations, and we cover them even if they go to another car rental company to get the car," Briggs said. "However, it has to be negotiated, and we require documentation to verify that a car wasn't available." In contrast, Hertz doesn't transfer the insurance to another company's car, Johnson said.

But in some instances, the corporation may find it worthwhile to take on the risk. "If our people have to get a car from a non-negotiated supplier, we tell them to decline the insurance," said Dow's Zielinski. "Safety is ingrained in our culture, and if we look at the cost of CDW, we could easily rack up a lot more in rental insurance than we'd ever pay in claims."

Third-party liability, the other type of coverage corporations need to worry about, may be more complicated to figure out. All car rental companies are required to have a minimal coverage by law, but the amount varies by state and is almost always "bare bones," as McArdle put it. The limits typically run $50,000/$100,000 for car rental firms, and in some cases less--$20,000/$40,000 in California, for example.

Obviously, to avoid being wiped out by a single multimillion dollar claim, companies need to supplement this. "Being covered for less than $5 million is nuts, especially because the coverage doesn't cost that much," he said.

"Travel managers should say to the car rental company, 'quote me $5 million worth of coverage starting at $1 million, and quote me the car rental limit,' " McArdle advised. "You need to calculate how much it would cost to get the extra insurance every time you rent, then look at the premium."

One way to offset the cost is to purchase $5 million worth of primary insurance and then go to a secondary company for the next $10 million, McArdle said. "Because the threshold is so high, this is very inexpensive. It's a lot cheaper than purchasing it from one guy holding $10 million."

Overseas, corporations are far more likely to have their travelers purchase the CDW at the counter. "If there's a claim, car rental agencies in some countries will say, 'before you leave the country you have to settle up.' They'll nail the travelers' credit card for several thousand pounds. If you don't have a lot of travelers going to a particular destination that's high risk, like Paris, I'd tell the employee to take the insurance," McArdle said.

But if the volumes to a particular overseas destination are high--perhaps because of a conference--McArdle advised travel managers to "make a side deal, even with a local company."

Further complicating things is the fact that some countries in Europe require renters to purchase the insurance. "Unless the company has offices in those countries"--in which case it can negotiate locally--"they're going to pay the insurance," said Charlie Piranian, Budget Rent a Car's vice president of sales. And American Express, Visa and MasterCard corporate and small business cards exclude Ireland, Israel and Jamaica in their CDW coverage.

Whatever policy a company chooses, communicating it to employees is key. "Travel departments must inform employees about the terms of their policy for each car rental vendor," Abrams said. "They must also understand the protections and limitations for each supplier, on a destination-by-destination basis. For example, if they drive the car from San Diego to Tiajuana, all bets are off regarding insurance once they cross the border.