While the premiums generated from writing transportation risks may seem tempting to insurers, experts in the field warn that a certain level of expertise is required to turn those premiums into profit.
David Dunn, president of RLI's Transportation Division in Atlanta, said while customers pay sizable premiums, the risks also have potentially sizable losses. He noted that a carrier may have one individual account that may not have a loss, and on that risk, the carrier can make money at any price. But he said if a carrier prices its entire book of business under that premise, money will be lost.
Companies underpricing risks because they don't understand the full value of claims remains a challenge in the transportation insurance sector, he said.
Shawn Young, senior vice president, transportation practice leader of NIP Group, a Woodbridge, N.J.-based specialty brokerage, said newer companies sometimes do not know how to rate transportation risks. Sometimes, he said, an insurer will, for example, rate trucking risks as fleet auto, which is written at lower rates that do not reflect the higher risk of trucking.
Mr. Dunn noted a claim could look much different if an accident involves a truck rather than a car.
The transportation insurance market, Mr. Young said, is “typically very aggressively priced,” which can frustrate some carriers. The market is also susceptible to “rogue markets” that will come into the transportation market and underprice every other carrier.
Larry Kalior, of California-based Transportation Insurance Brokers (TIB), a brokerage dedicated to the passenger transportation industry, said a common mistake for new entrants is “hooking up with people who don't know what they're doing.”
Some carriers give underwriting authority to managing general agents, he said, and if those MGAs do not properly understand or price the risks, the insurance company suffers.
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