How Fleets Can Address Nuclear Verdicts and High Insurance Costs

The high costs of legal settlements and “nuclear verdicts” have made it harder for fleets to get affordable insurance, but motor carriers can beat those trends with tightly run safety programs, technology, and intelligent risk financing.

“There is a lot of opportunity for visionary motor carriers to use this market to separate yourself and have a cost and risk advantage,” said Chris Mikolay, vice president, national accounts, with National Interstate Insurance, in a June 24 session during the Truckload Carriers Association’s virtual Safety & Security Summit.

“You can gripe and grumble about how unfair it seems,” he said, “Or you can say, ‘how do I outsmart this market, how can I do something different so I can have a lower cost of risk than my competitor who doesn’t do things as well as I do, who cuts corners?’ The insurance industry has been disrupted by nuclear verdicts … but there are absolutely things motor carriers can do here to combat these prevailing headwinds.”

There will always be a competitive insurance market for well-run motor carriers, he said. In fact, Mikolay said it just had one large fleet customer who recently received an overall decrease in its insurance costs.

How Insurance Companies Determine Rates

Insurance underwriting is largely an educated guessing game, he said. “Underwriting is like driving a car by looking in the rearview mirror,” he said, where they look at past losses to determine future prices.

Most insurance companies, he said, extrapolate from large data sets, looking at factors such as lanes of travel, commodities hauled, MVR profiles, safety technology, radius of travel, etc. If you run a lot of miles in states known for nuclear verdicts and high insurance settlements, your rates will reflect that.

But they also look at factors such as the depth of the management team, its safety culture, its financial strength, its CSA scores, use of safety technologies, and overall trends.

“We could talk for hours about the future of insurance rating and telematics,” Mikolay said. The insurance industry is looking to “Moneyball” the trucking industry, he said, referring to the book and movie about the Oakland A’s use of statistics to assemble a competitive baseball team. Using data, he said, will allow insurers to set rates using information on driver profiles, traffic information, where incidents are happening, etc.

Be smart about risk financing

Each fleet needs to examine variables that affect their total cost of managing risk. That includes what kind of insurance program you choose, who you partner with, how much risk you retain – what kind of deductibles? What about some level of self-insurance?  

These two things must work hand in hand, Mikolay said.

“Most insurance companies want to take all the risk from you – for a handsome premium,” he said, assuming you are a very well-run, safety-conscious motor carrier. But if you’re a large carrier, he said, there is a point where you should retain some risk. “If you’re managing risk the right way but have a no- or low-deductible policy, you’re at the mercy of the larger market. If you’re buying a large deductible policy or self-insured but cutting corners on risk management, you’re going to pay more over time.”

And you don’t have to be a large carrier to look at taking on more of the risk. “If you are a couple dozen trucks, there are a lot of options,” he said, such as group captives or higher deductibles.

Get Your House in Order

The first step in keeping the cost of risk down is to avoid claims to begin with, Mikolay said. “The number one thing you can do to avoid the nuclear verdict is to get your house in order, no exceptions.”

Too often, said Mikolay and other panelists, plaintiff’s attorneys in lawsuits sway the jury, not with the facts of the case at hand, but other factors that convince jurors that the company isn’t doing all it can to keep the motoring public safe. (He recommended doing some research on “reptile theory” or “reptile strategy” and how to counteract it.)

Safety culture needs to come from the top down, he said. “I can’t tell you how many times I meet a VP of safety or a safety director who was not empowered to make decisions, who didn’t have the tools or resources they need to really help that carrier become best in class.”

Mehdi Arradizadeh, vice president of safety and risk management for Anderson Trucking Service, said early on in the discussion, “If you don’t have your house in order, they’re going to come after you,” referring to attorneys that sue trucking companies after an accident. “It all depends on prevention and what safety practices you have within your companies.”

Arradizadeh advised that fleets make sure all their training materials are well documented. Make sure you have a preservation policy for every accident. If you have a camera system in your truck, you need to have a preservation policy for that camera, and you need to follow it.

“Everyone needs to know what your policies are and follow them. If you don’t, they will come after you. Defense attorneys are going to dig and dig until they find something in your driver’s background or your background or in your system to beat you up, to make sure jurors get angry at you.”

Turn to Technology

Mikolay strongly recommended using in-cab cameras, which he called game-changers. “If you’re using them correctly, they are absolutely a way to avoid losses to begin with – and when you have one to know exactly how to adjudicate the claim.”

“Nowadays if you don’t have a plan to, or if you haven't been, testing cameras, then you are being left in the dust,” and that’s something insurance carriers look at when determining rates.

“The best motor carriers are seeing that the cameras are an ally," Mikolay said. "Yeah, you’re going to have a driver that gripes about the camera here and there, but those are almost always guys who gripe about everything.”

When he says using them correctly, part of what that means is using both inward- and outward-facing cameras.

“If you are only using outward-facing cameras, you are not getting the whole story,” he said. “You will not lose drivers, or maybe one or two, particularly if you are coaching right and incentivizing the drivers the right way. You get a couple cases where the camera saved them, and they’re your best advocates.”