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The Trucking Industry Insurance Landscape: What’s Driving Rate Increases?

December 10, 2019 | By ClearConnect Solutions

The Trucking Industry Insurance Landscape: What’s Driving Rate Increases?

The trucking industry is facing cost escalations from multiple directions. Driver shortages, rising fuel prices, and necessary investments in technology are putting increased demands on their already narrow margins.

Insurance rates, however, have represented the largest area of growth in operational expenses. In a recent report, the American Transportation Research Institute (ATRI) found the trucking industry had seen four straight years of insurance cost increases, rising as much as 30 percent during the middle of this decade.

According to the Analysis of the Operational Costs of Trucking: 2018 Update, carriers are employing different strategies to balance insurance costs with operational risks. “Larger fleets often self-insure or utilize high deductibles, creating the appearance of lower overall and per-mile insurance costs. In some instances, larger fleets’ insurance costs are indirectly transferred to other line items such as onboard safety technologies, or driving simulator training,” the research found. “Smaller fleets will also attempt to hedge insurance rate increases in similar ways, such as increasing per-truck deductibles by 20 to 50 percent or joining a “captive” insurance group – which distributes risk and cost across a wider safety net than any one fleet could financially accrue.”

Here are three developments in the transportation insurance sector that are making it challenging for trucking firms to find affordable coverage:

1. More Accidents, Higher Premiums

In 2017, nearly 5,000 large trucks and buses were involved in fatal crashes, an increase of 42 percent from a low of 3,432 in 2009. These incidents resulted in some major insurance payouts which prompted several insurers to exit the market completely and others to raise their premiums. “It’s not a universal rate increase across the board, but accounts that have issues…where there’s loss issues or driver issues or compliance issues,” said Michael Birge, president, HUB International’s transportation division, in the Insurance Journal. That’s where companies are “going to see significant rate increases.”

2. Carriers Leaving the Market

Dan Cook, Principal & Practice Leader at TrueNorth Companies, also noted in the same article that “two years ago, the large fleet trucking market was in turmoil” when several players, including Zurich and Lexington Insurance, AIG Division, exited the liability market. This left a significant shortage of capacity in the large fleet space. Since that time, the large fleet segment has rebounded but now smaller fleets – those less than 100 trucks – are experiencing the turmoil.

3. Tightened Underwriting Standards

Given the current booming transportation industry, more trucking companies are joining every day. While this presents new opportunities for the insurance sector, trucking firms in the small fleet space (1 – 10 trucks) can find it a challenge to secure coverage.

“That ‘new venture’ is looking at a pretty high premium for the uncertainty from an underwriting perspective,” said Brad Allen, executive vice president of AmWINS’ Transportation Underwriters, in an Insurance Journal article. Carriers willing to write these accounts are few and far between.

Another constraint, according to Pete Feeney, regional director of SCU Transportation, a CRC Group Company, is the growth of smaller trucking fleets. “For example, if you have a small trucking firm, with two units, but they’ve been in business for three years and are looking to pick up another contract and add two more units – that’s easier said than done,” he said. “That’s a challenge because a lot of insurance carriers have strict guidelines on growth.”

There are good reasons from an underwriting perspective. “Carrier data shows that when small accounts have X amount of growth, the loss ratios on those accounts tend to jump up. So, that becomes a challenge for those smaller insureds.” If a small trucking firm grows too quickly it may be forced to move to another insurance carrier, and that could be a 50 percent jump in premium, Feeney said.

To find out more about the forces impacting the transportation industry, read our latest whitepaper, A Practical Approach to Insurance and Regulatory Compliance for Transportation Companies.