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Risk in Context

Road Ahead for Fleet Owners Renewing Insurance Looks Rocky

Posted by Craig Dancer March 09, 2016

A trucking firm makes the decision to invest in new tractors, excited by the upgrades in technology and efficiency and by the satisfaction that comes with investing in the business. Then comes the insurance bill.

Trucking companies of all sizes are generally experiencing increases in insurance pricing due to factors that range from workers’ compensation costs to fleet issues to rising jury verdicts. The recent Analysis of the Operational Costs of Trucking for 2015 from the American Transportation Research Institute (ATRI) identified an 11% year-over-year increase in truck insurance premiums when normalized on a per-mile basis from 2013 to 2014. 

And in the fourth quarter of 2015, Marsh data showed rates for general liability, auto liability, excess casualty, and workers’ compensation remaining flat or increasing — significantly in some coverage lines and for some transportation companies, depending on specific circumstances.

Issues behind the premium increases include:

Fleet turnover: New tractors come with mandated stricter emissions controls, higher efficiency standards, and new technologies. These improvements increase the cost of a tractor, which in turn raises insurance costs. The higher rates for physical damage premiums will largely impact owner-operators and small- to mid-size fleets as opposed to large-fleet operators, which typically self-insure.

Workers’ compensation: The Occupational Safety and Health Administration (OSHA) has heightened inspections and enforcement, and the frequency and severity of injuries has risen due to an aging workforce and a chronic driver shortage. 

Liability coverage: Trucking liability insurers have been under pressure since 2013 to raise rates. A dramatic acceleration of pricing began in the second quarter of 2015 and continued through the year.  Rate increases correlate to poor underwriting results across the industry, driven by an increase in claim reserves. As losses increase, some insurers are retreating from the umbrella/excess marketplace and/or increasing their attachment points. Insurers are also quoting smaller limits to reduce their transportation exposures.

Lawsuits and loss experience: There’s been a rise in the severity of jury awards against trucking companies, despite a drop in the frequency of preventable accidents. Adverse verdicts — many exceeding $100 million — have increased substantially, even where it is difficult to identify fault. With juries seen as sympathetic to plaintiffs, many insurers and motor carriers have settled claims that may previously have resulted in verdicts favoring the defense.        

The road ahead for many fleet owners renewing their insurance programs is likely to be more challenging, time consuming, and costly, barring unforeseen changes in conditions.  Fleet owners need to begin the renewal process early and should anticipate a higher level of underwriting scrutiny focusing on driver screening and recruitment, training, safety, claims management, and use of technology.   

For more information about insurance and risk trends, see Marsh’s US Insurance Market Report 2016.

Related to:  Transportation

Craig Dancer

Craig Dancer is the Transportation Industry Practice leader, responsible for directing a dedicated team of industry specialists and subject matter experts in transportation infrastructure construction and operations, trucking, logistics, livery, and rental.