Trends driving the hard transportation market in 2020
Thin profit margins, loss history and reduced insurance carrier appetites continue to plague commercial auto clients.
The range of challenges — including infamous nuclear verdicts — that have negatively impacted the commercial auto market in recent years will continue to harden the struggling market through the year’s end, says a new report from Risk Placement Services (RPS).
Premium rates in the sector have increased 10-15% year-over-year since 2010, driven primarily by the trucking segment, according to the “U.S. Transporation Market Outlook” report. Other factors such as an aging workforce, driver shortage, distracted driving, fleet maintenance and social inflation also have contributed to rising premium rates.
Companies that operate fleets, however, do have an advantage over non-fleets in regard to pricing. Although fleets have higher limits, they also take on more risk with higher deductibles and self-insured retentions than non-fleet companies, said the report. Fleet size also plays a role in price when you consider how larger fleets have higher budgets to commit to safety and compliance — a critical factor in reducing premium rates.
“Long-tenured fleet clients with good loss control and professionally managed operations will typically see less of an increase in premiums,” Andrey Miterin, transportation and commercial auto manager, Northeast/Mid-Atlantic region at RPS, said in the report.
Unfortunately, the same cannot be said for companies with questionable safety records that struggle to obtain affordable insurance with fewer insurers assuming transportation risks. As a result, several trucking companies have shuttered operations in recent years.
Coverage gaps
Amidst rising premium rates, transportation companies must carefully allocate funds. That means extra insurance coverage often goes overlooked.
One of the main coverage gaps is cyber insurance, especially as telematics and safety software become more ubiquitous with transportation companies. It follows that agents and brokers should “change the narrative for cyber insurance away from data breaches and toward business continuity,” said Steve Robinson, RPS national cyber practice leader.
Many companies also fail to take advantage of excess liability insurance. According to the report, most small-size trucking companies only purchase excess coverage if required by a direct shipper of third-party logistics, while larger fleets opt-out of the coverage primarily due to cost.
Outlook ahead
Some commercial auto carriers have been able to locate a silver lining during the pandemic. At the same time, they’ve been able to assist clients with reduced premiums, deleted units and/or waved monthly minimum reporting for mileage, receipts or units.
“Insurance carriers have struggled for so long from a loss perspective, and the pandemic has allowed them to catch up a little. But it’s more of a reset than an ability to lower rates and bring a soft market,” said Mark Gallagher, national transportation practice leader at RPS.
While these changes are helpful in the short-term, RPS recommends that agents stress the importance of safety to help transportation clients remain profitable long-term. Utilizing telematics, appointing a safety director, hiring quality drivers, and properly documenting all safety measures are a few suggestions outlined in the RPS report.
“Safety scores are the gatekeeper in determining pricing,” said Mike Mitchell, RPS area president, transportation practice, Southeast region. Not only do poor safety scores negatively the driver and motor carrier company, but they also can lead to a denial of insurance coverage or be used as leverage in lawsuits.
“When there are losses, insurance carriers want to see corrective measurements in place,” Miterin added. “They will ask: ‘Is leadership investing time and money into long-term safety improvements or are they only implementing measures until the losses improve?’”
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