Should the Government Increase Minimum Insurance Coverage Requirements?

This week, the U.S. House of Representatives approved an amendment that would stop the Federal Motor Carrier Safety Administration from changing insurance minimums.

As Washington Editor Oliver Patton notes, "The amendment is a long way from becoming law but it highlights opposition to the agency even considering a change in the minimums."

In April, the FMCSA said it had formed a team to consider higher minimums, and said it was a high priority.

In a report to Congress the agency said it is clear that the current minimums need to be reevaluated. The report was prompted by the 2012 highway law, MAP-21, in which Congress ordered the agency to analyze the situation.

However, not everyone believes it's so clear.

The last adjustment was in 1985. It set the current standard of $750,000 for general freight, $5 million for the most dangerous hazardous materials and $1 million for other hazmats.

The agency is considering a range of options, but one would be to peg the minimums to the Consumer Price Index. If that happens, the general freight requirement would jump to $1.6 million, dangerous hazmats would go to $10.8 million and other hazmats would go to $2.2 million.

Daines said such changes would cut insurance availability.

“The bottom line is this,” he said. “The trial lawyers win, the small businesses lose.”

Mike Natalizio, CEO of insurance and consulting company HNI, recently posted a blog offering his take on the pros and cons of raising the minimums.

He notes that the vast majority of for-hire motor carriers purchase more than the minimum, typically $1 million and higher.

His reasons to favor an increase:

• An extremely high percentage of claims settle within the current minimum limits. In some situations, the value of the loss far exceeds the minimum, leaving claimants undercompensated and motor carriers exposed to uninsured loss.
• Back in 1985 when the current limit was put in place, truck verdicts and settlements in excess of a million dollars were rare. Today, this is common on catastrophic losses.
• Increased limits incentivize insurance companies to offer greater safety training and supervision to the motor carriers they underwrite, which is good for the industry as a whole — especially for smaller carriers with less resources at their disposal.
• Raising the minimum limits also mitigates broker liability for larger motor carriers engaging in freight brokerage, because higher limits would be available to claimants.

Natalizo's reasons to oppose an increase:

• It's probably that the move would raise the value of all claims simply because the pockets become deeper. With more money on the line, plaintiff attorneys can play hardball, forcing insurance companies to settle rather than defend the value of the claim in front of an unpredictable jury. When claim costs increase, insurance rates go up.
• An increase in the limit hits smaller, less capitalized motor carriers harder. This in turn will also impact large motor carriers that have become more dependent on smaller motor carriers to handle their brokered freight. Nobody wins (in the trucking industry) if the requirement increase is beyond a reasonable level.

What do you think? Share your experiences and insights in the comments below.