In the past few years, the business press has been full of articles about private equity investors buying big companies and then making them even bigger. Below the media's radar, however, the nation's small businesses continue to operate as usual and make significant contributions to the nation's economy.
This is particularly true in trucking, an extremely diversified industry. While some major trucking companies operate fleets of hundreds and even thousands of tractor-trailers, there are also plenty of small owner-operators, often one-person businesses having a single rig. At United Insurance Group, these truckers constitute an important clientele. While we insure trucking companies of all sizes, owner-operators make up a majority of our trucking accounts, if not our volume. In this article, I'll explain how we provide the insurance to these entrepreneurs that enables their businesses to roll along.
I joined United Insurance Group, which is one of the largest agencies in Maine, about four years ago. Before that, I had been vice president of operations for a Maine-based trucking company, and I was looking for a change. While I wasn't responsible for negotiating the trucking company's insurance program, I did take part in insurance meetings and had some understanding of its coverages.
When an opportunity arose to join UIG, I decided to take it. At that point, the agency had relatively few trucking accounts on its books. We agreed that once I was on board and became licensed, the agency would work to develop this niche.
The decision has been a good one. We now market the agency's truck-insurance operation as UIG Transportation and have hired producers specifically for this specialty. In the UIG office in which I work, trucking insurance accounts for about 30% of the book and that number is growing. Several UIG offices write truck insurance, and we coordinate our activities. Typically, we ascertain which office has a relationship with a prospect or a center of influence who might get us in the door. Then we let a producer from that office take the lead.
Our trucking book consists mainly of smaller accounts. We predominantly write in northern New England and New York. Maine has many owner-operators who have one or two trucks, and we write many of them. Some have one or two employees; others operate on their own. While some lease themselves out to fleets, the state's commodities are such that many feel they can make a living independently, and so they obtain their own motor carrier number (essentially, their regulatory authority to operate as an interstate trucker). They often partner with the logistics/brokerage arms of Maine-based transportation carriers and haul exclusively for them and their customers. Other owner-operators focus on Maine's agricultural products, such as paper and lumber. They often partner with freight brokers, who find loads for them to haul from a variety of shippers. While some operate just within Maine or regionally, most are long-haul truckers.
Prospecting
Whenever we write or renew an account, we ask for referrals. Often clients also take the initiative to call in names of people to contact. Our closing ratio on these prospects is probably 85% to 90%, in part thanks to our qualification process, on which I will elaborate a little later.
Of course, one reason prospects call is to see if they can find a lower premium, but it also could be that a prospect is looking for someone with greater expertise than his current agent. In fact, a major reason for our success is that the producers in UIG Transportation have a background in the trucking business. For example, we recently hired for our New Hampshire office a producer who has a 30-plus-year background in less-than-truckload (LTL), regional and long-haul trucking. To be able to speak the lingo, tell prospects you used to run a trucking company and offer them access to more truck insurance markets than most local agents can is a decided advantage.
Another way we market ourselves and prospect is through associations. I sit on the board of the Maine Motor Transport Association. I often answer insurance questions for members, or put them in touch with current clients.
About a year ago, we created a brochure for our transportation unit. It provides information about the products and services we offer, and lists the insurance markets we can access. We mail (or e-mail) the brochures to prospects, along with letters and business cards, after making initial contact with them. We also give copies of our brochures to truck and trailer dealers. In turn, they give them to clients who raise insurance questions.
We also cold call. When I'm out traveling and see a truck of a company with which I'm unfamiliar, I write down the motor carrier number from the truck's side and use it to research the trucker on the Federal Motor Carrier Safety Administration's SAFER site (www.safersys.org). At the site, I can look up the prospect's “company snapshot,” which provides information about its out-of-service rates (how often inspectors have taken vehicles or drivers off the road) and how their rates compare with national averages. Then we take a look at the accident detail. (The site reports the number of fatal and nonfatal crashes for the past two years.) The snapshot also provides an overall safety rating: satisfactory (no evidence of noncompliance with safety requirements), conditional (evidence of noncompliance with one or more requirements), or unsatisfactory (substantial noncompliance). The snapshot also discloses the type of cargo the company hauls.
We don't automatically rule out prospects that have adverse stats; sometimes there are explanations for them, but we want to know about these issues upfront. After checking the data on SAFER, we may call the insured to review what we have found and ask what steps they have taken to improve their rating(s).
Some of our markets also provide marketing assistance. One of our insurers has gathered a lot of helpful data about prospects, including their motor carrier numbers, current insurers and expiration dates, and put it into an Excel spreadsheet for us. While all the information is available from various government sites, having someone else compile it for us is a great convenience. A major wholesale broker, Swett & Crawford, also partners with us by providing information on truckers.
Coverages
Owner-operators need a variety of coverages. Following is a summary of the major ones and the data we need to approach the markets:
–Truckers liability: To obtain a quote, we need to know the prospect's radius of operation, major city exposures and regular routes. Additionally we must have the year, make and model of their equipment, and a percentage breakdown of the type of cargo they haul. Of course, motor vehicle reports for owner-operators and any drivers they employ are required.
On fleets with more than 25 power units, underwriters like to see current financial statements. For owner-operators, we can usually forgo such information. We collect interstate fuel tax reports (IFTAs) on all our clients, although not all underwriters require them, particularly for owner-operators who have three or fewer trucks. They often have dedicated runs from, say, Maine to Texas and their routes don't vary much. For larger trucking clients, however, who may operate throughout the lower 48 states, the fuel tax reports can be an important underwriting tool. They indicate how many miles an insured logs in each state, which will be rated separately on the basis of traffic congestion and other factors. In some cases, fuel tax reports help us document that a client is doing most of his driving in lower-rated states, or that a significant percentage of his trips are shorter than 100 miles, which also can reduce rates.
After obtaining the information, we determine which two or three markets best fit a client's operation. We customarily write $1 million liability limits for all clients, which satisfies regulatory insurance requirements for interstate truckers and, if possible, matching uninsured motorist limits.
–Physical damage: A major issue here is selecting a proper deductible. While many owner-operators opt for a $1,000 deductible, they sometimes can reduce their premiums by accepting something a bit higher–maybe $2,500. We also make sure the client's coverage includes towing and a combined deductible, rather than one that applies separately to the truck and trailer.
For most owner-operators, we try to include “downtime,” or rental reimbursement, coverage as part of their physical damage insurance. The product functions something like business income insurance. After an owner-operator's tractor is out of service a certain number of days–the period may range from one week to 30 days, depending on the policy–the coverage pays the trucker a certain amount per week until the owner-operator's truck is restored or the limit is exhausted.
When one of our clients is put out of service by an accident in which he was not at fault, we help pursue downtime charges from the other party's insurer. We write the carrier a letter in which we document our client's actual revenue loss and extra expenses. On most occasions, the insurer of the at-fault party has agreed to cover them.
–Insurance for nontrucking use: A minority of our owner-operators annually lease themselves out to larger trucking companies. Such a client becomes part of the company's fleet, operates under the company's motor carrier authority and is covered by the company's auto liability insurance–but only while he is under dispatch by the company. For these clients, we provide insurance for nontrucking use, which covers an owner-operator's auto liability at other times.
–Trailer interchange insurance: We have some clients who, in the course of business, exchange trailers with other truckers under the terms of a written contract. That contract can alter the liability a trucker otherwise would have for a nonowned trailer. Trailer interchange insurance is the proper product to cover this exposure. Of course, a key document we must have to obtain it is a copy of the trailer interchange agreement.
–Cargo insurance: For owner-operators who haul under their own motor-carrier authority, we pay a lot of attention to cargo coverage. In addition to obtaining a percentage breakdown of the types of cargo they haul, we ask if they need to insure it to value and what limits they require, which can vary. For instance, one shipper may require an owner-operator to carry particularly high limits. In that case, we could write a $100,000 cargo policy with an endorsement that increases the limit to $200,000 whenever the owner-operator hauls a shipment for that particular client. We also ask clients if they need any other special coverages, like “refer” breakdown for refrigerated-trailer haulers.
–Other coverages: We make sure that we offer clients three additional products. The first is an excess liability policy providing increased auto liability coverage. It's quite expensive, however, and not often bought. Another is a general liability policy, which for a typical owner-operator working out of his home usually costs $500. A few of our clients have garages; in that case we certainly want to make sure that they have a CGL to cover their premises and other exposures. We will also write the property coverage on the garage and its contents. Last, if the owner-operator routinely hauls trailers of others, but not under an interchange agreement, he may need nonowned physical damage insurance to cover that exposure.
Servicing accounts
When arranging coverage for our accounts, whether new or existing, we complete the transaction at least three to four weeks prior to the X-date. One reason is because we don't want to go down to the last minute on the client's regulatory insurance filings, which must be made for the liability and cargo coverages. Once we get the binder or the order to renew, we send the information to the insurer or MGA issuing coverage. They make the necessary filings with the Federal Motor Carrier Safety Administration to document that the trucker has the required limits of coverage.
Another reason we wrap things up early is to make sure we have time to process certificates of insurance. Most of our truckers have extensive lists of clients, loss payees, brokers and fleet operators to whom they must provide evidence of insurance. When coverage renews, we must update the certificates with the new policy numbers, among other things. Taking care of such matters in advance also allows us to more easily accommodate last-minute changes for clients.
We do not provide loss-control services, although that's one of our long-term goals. Whenever we write or renew clients, however, we make sure they have accident kits. Some, but not all, insurers provide accident kits, so we created our own. The kit contains the insured's policy numbers as well as a toll-free claim reporting number and after-hours numbers. They also include cameras to photograph details of an accident. That's critical, since it's extremely difficult to document an incident after the fact. The kit also contains a pen and tablet for note-taking. We provide a kit for each truck, as well as a few extras in case one disappears.
State of the market
In today's truck insurance market, premiums are falling but not as dramatically as in the standard property-casualty market. On renewals, we're typically seeing decreases of 4% to 6%. And, as I noted earlier, we try to get a commitment from clients to renew early. Often if a trucking company knows you can lock in a lower rate prior to renewal, they'll accept that and finalize the transaction.
We represent a variety of truck insurers and each has its area of expertise. Some focus on local or short-haul operations, others like regional carriers that operate within a 500-mile radius, and still others focus exclusively on long-haul operations. Our goal is to find the right fit for each of our insureds.
When working with underwriters, we are completely candid with them. If we encounter an account that may “have a little hair on it,” we make our submission complete, so we don't have to repeatedly go back to the underwriter with additional information, a frustrating process for all concerned. We try to anticipate and have answers for any questions an underwriter may have. For instance, if a trucker's SAFER stats show that its driver or vehicle out-of-service rate is above average, we will provide an explanation. Doing so demonstrates to underwriters that we've done our homework and gives them more confidence in us.
Our owner-operator clients wear many hats. They're truck drivers and sometimes mechanics as well. They, or their spouses, have to be knowledgeable about a variety of business issues too. Insurance, however, isn't one of them. That's where they can rely on us to deliver the goods.
Ed Therrien is vice president of transportation for United Insurance Group. UIG has headquarters in Falmouth, Me., and operates out of 15 offices in Maine and one in New Hampshire. The agency, one of the largest in Maine, has grown primarily by acquisition. At each of its offices, it has retained the original name of the agency it acquired. Mr. Therrien joined UIG four years ago after working at a trucking company for 12 years, where he was vice president of operations. He works out of UIG's office in Presque Isle, Me., which does business as Hayden/Perry Insurance Agency, from where Mr. Therrien manages UIG Transportation.