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The Last Word

The Good, the bad and the ugly . . . today's commercial insurance market

By Jeff Threlkeld

The American Transportation Research Institute (ATRI) recently published its 2019 report on “Critical Issues in the Trucking Industry”.  Based on a survey of over 2100 trucking industry stakeholders in North America with 51% of the respondents being motor carriers, this report identifies the top 10 industry issues/concerns. Coming onto the national list in the #9 position—for the first time in the last 10 years of the ATRI report is “Insurance Cost/Availability.” For Arkansas-based trucking companies, insurance is an even greater concern as ATA President Shannon Newton confirmed this issue is #4 on the list of Arkansas respondents to the survey. If I had to make a prediction now regarding the rankings for the 2020 ATRI report, I would wager $100 that “Insurance Cost/Availability” will be moving up next year’s critical issues rankings list faster than NASCAR driver Jimmie Johnson passing race cars in the last three laps at the Daytona 500.

The good news on the insurance market front is that workers compensation rates per $100 of payroll exposure have been decreasing across the country for several years. Owners and executives of companies that have recognized that their workplace safety costs and exposures are controllable and committed to an active role in the oversight of their workers comp programs have received the most financial benefit regarding these cost savings. In this state, the Arkansas Trucking Association Self Insurers’ Fund has been a partner to motor carriers for many years, providing them a competitive workers comp market, while also returning underwriting profits through dividends to its members.

Beginning in 2018, buyers of commercial insurance began to experience rate/premium increases for the first time in many years on certain lines of coverage—particularly commercial auto and property insurance. Trucking companies (and large private fleets) were front and center and began to feel this added expense load on their financial statements in 2018 as well.

The bad news is auto liability rates/premiums have continued to rise each quarter throughout 2019 as insurance carriers seek to make up for years of inadequate pricing and loss reserving due to adverse auto claim experience—both in loss frequency and loss development severity. This “market correction cycle”, as one transportation insurance underwriter recently referred to it, is likely to continue through 2020.

When I began my career in the commercial insurance brokerage business back in the mid-80s the primary limit of liability insurance being written for commercial auto accounts was $1M per accident. Fast forward 30+ years later and guess what … the primary commercial auto liability limit for most commercial insurance policies is still $1M. Today’s reality is that $1M of liability limits is not what $1M used to be. Medical costs associated with accident injuries, inflated cost of repairs and the problematic legal climate in many states/jurisdictions (aka judicial hellholes) present significant over-the-road liability exposure for motor carriers and their insurers.

Now for the ugly news. Umbrella underwriters have historically attached their excess liability policies above this $1M primary limit, and have charged a discounted rate/premium for the liability limits provided. Those days are gone. The “frequency of severity” with respect to multi-million dollar auto liability claims along with the proliferation of “nuclear verdicts” delivered by plaintiff attorneys focused on “big truck” accidents has created a crisis—both in unprecedented rate increases and disappearing capacity of liability limits. Simply finding capacity in the market to provide liability limits requested by transportation companies is a challenge for insurance brokers as many insurers have taken their ball and gone home. Those that have stayed in the game have reduced their capacity by 50% or more regardless of the size of fleet operation insured. 

In today’s underwriting environment, scrutiny of a motor carrier’s fleet operations includes much more than a review of MVRs, driver hiring/training practices, Central Analysis Bureau reports and loss information. Underwriters expect that motor carriers will utilize today’s safety technology on their equipment (e.g. collision avoidance systems, on-board cameras and telematics) as a proactive measure in preventing accidents.

All of this to say that the current underwriting market cycle will eventually moderate, but until then… may the force be with you.

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Jeff Threlkeld is senior vice president with McGriff, Seibels & Williams and on the McGriff Transportation Practice team. He is the broker partner for the Arkansas Trucking Association Self Insurers' Fund.

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