News

The power of Association

P.J. Giannini believes that the power of numbers will help his Pizza Trade Association lower operators' hired, non-owned auto insurance premiums.

June 30, 2004

Pizza operators and insurance carriers make odd bedfellows.

Just like a tempestuous marriage maintained "for the sake of the kids," insurers and operators tolerate each other because each has what the other needs.

P.J. Giannini said the relationship needn't be so acrimonious, and that if each party better understood the other's business, the situation would improve greatly.

As owner of the Pizzasure insurance brokerage in Ridgefield, N.J., Giannini knows the amount of dough pizza operators trade for hired, non-owned auto insurance. He also believes insurance companies unjustly rate all pizza delivery operations as high risk.

The middle

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ground—where pizza operators' insurance rates are affordable and insurance companies reassess the risk of insuring pizza operations—is attainable, he said. But to claim it, the two sides must work together.

Giannini's goal is to use his newly formed Pizza Trade Association to gather a large number of independent pizza operators under the umbrella of a single insurance carrier who can give them a decent rate (Many operators pay $5,000 to $7,000 per store for hired, non-owned auto insurance.) PTA members would commit to following safe delivery guidelines and submit detailed loss or claim information for the purposes of long-term statistical tracking. If all works as planned, Giannini believes the stats will show an insurance carrier that PTA members are not only worth insuring, but worth insuring them at lower rates.

"This is based on the spread of risk across a reasonable population with a reasonable pool of participants available to achieve a decent result," Giannini said. "The problem with pizza delivery people is that there is not a large-enough number" of participating independent operators to achieve desirable rates.

Decades ago, farmers formed similar insurance cooperatives to offset catastrophic losses such as lightning strikes to barns or the death of an entire herd. Such losses would crush an individual farmer, but a collective group of insured farmers could sustain and cover the loss.

But simply assembling a large number of pizza operators to present as a potential customer of an insurance carrier doesn't guarantee that carrier will insure them, Giannini said. Insurers base their choices solely on risk-to-return ratios, and if risking money on pizza operations threatens a lower return than another risk, the latter gets picked.

"These companies say to their (underwriters), 'You have X millions of dollars to commit in a risk-bearing arena, so you better have a good reason why you committed it to this particular segment,' " Giannini said. "So that leaves the agent saying to the customer, 'Tell me why I need to put your name on the account?' Well most people say, 'Because I need the insurance.' But that is not a compelling reason."

He said the compelling reason lies in statistics that could prove to an insurer that a group of pizza operators have reduced their driver-associated claims. The PTA's members could, in essence say, "For a given period of time, our results were this because we followed these safe practices. And by this, we know we're better than average," Giannini said.

Not an original idea

Most companies whose businesses center on the delivery of goods to customers (some large pizza chains, trucking firms and product distributors among them) track their fleets' safety records for insurance purposes. When the time comes to negotiate a new insurance rate, those companies either pay more or less based on that data.

"This idea was not crystallized in some visionary dream, this is being done by big companies right now," Giannini said. "We're just taking that big enterprise risk management theory and making it useable to the individual pizzeria owner."

Still, a company's or group's numbers must show constant improvement, he said.

"Getting good rates depends on who gets in," he said. "If we have people get in who are committed to making a safe enterprise out of this, it'll certainly drive the cost down. But you'd be much better off with (a smaller portion) of really good ones rather than the total universe that includes a chunk of bad ones."

Since only three insurance companies write hired, non-owned auto insurance for pizza delivery companies, it's hard to find anyone—insurance brokers included—to discuss Giannini's idea. None of the handful of brokers contacted by PizzaMarketplace would comment on the record, claiming they either didn't speak to the media or chose to steer clear of a potentially volatile issue.

One broker, who spoke anonymously, thinks Giannini's idea is noble but won't lead insurance companies to lower the perceived risk of insuring pizza delivery operations. "He can take all of these (numbers) to all these different companies, and I'm sure it will help, but I don't know how much. ... That's because there is a very high loss potential in that business."

Another broker said insurance for pizza operations

This idea was not crystallized in some visionary dream, this is being done by big companies right now," Giannini said. "We're just taking that big enterprise risk management theory and making it useable to the individual pizzeria owner. -- P.J. Giannini, Pizza Trade Association

is best considered on a case-by-case basis because each has a unique loss record. Operators whose records are good shouldn't be penalized for those with bad records.

That reaction, Giannini said, doesn't surprise him. "I'm fast becoming the bad boy of the pizza insurance biz because I see the lack of foresight of my insurance brethren out there."

For the Pizza Trade Association's insurance arm to work, he said, an earnest change in the way both parties view each other—and present themselves to the other—has to occur.

"We've got to marry up an interested, serious insurance company with an interested serious population of pizza operators," he said. Many operators already have good records, he added, but insurers have focused more on the negative stereotypes attached to the delivery business. "I think pizza operators have (a good case), but their information just isn't presented right. Hopefully we can change that."

Privileges of membership

PTA's $199 membership fee essentially provides operators access to hired, non-owned insurance and it includes them in the statistically tracked group Giannini will present before an insurer. PTA is also working on a pizza operator group health insurance program, as well as a service that automatically checks and tracks delivery drivers' records on a scheduled basis. A driver's motor vehicle record typically is pulled during the interview process, but Giannini said few operators ever check them after they're hired. "But once the driver knows he's going to be monitored, he's either going to walk out the door because he knows he's going to get tagged, or he's going to drive a whole lot better."

How doable is the PTA? Giannini said the task ahead of him is incremental, not monumental; the effort boils down to the grind of membership processing and statistical tracking, not much more, he said.

"It's a matter of pizzeria operators becoming willing to commit to this venture," he said. "We're not telling them how to run their businesses. Basically they're saying, 'I'll commit to a set of protocols my drivers will follow.' That's it. ... After that, it's up to us to carry the ball to the underwriting community."