Trucking is hardly alone. The price of health insurance for all business started climbing last year -- higher health care costs, we’re told, are the main culprit. Hurricanes, tornadoes,floods and earthquakes worldwide made 1999 one of the most expensive years in insurance history. Add low interest rates, which hurt non-insurance earnings; plus Internet rate bidding, which has driven down prices, and you’ve got an industry plagued with sagging profits. That, too, means higher prices for just about everyone.
But truckers will pay the price for more crime, past competition, and lax underwriting standards.
“Insurance is the messenger,” says Bonnie Knoedler, Sparks Insurance, Kenosha, WI. “We don’t cause the rate increases. It’s the bills that are paid by insurance that cause the rate increases.”
Today’s insurance rates, she adds, “are loaded with costs associated with fraud.” Staged accidents and false claims drive up insurance payouts and legal fees. Hijackings and theft make cargo insurance more expensive.
Despite rising costs, however, insurance has been a bargain for many truckers in the last
few years. The industry hasn’t seen any big hikes since the mid 1980s and rates have actually been dropping since the mid 1990s, notes Liberty Mutual Executive Vice President Joe Gilles. “This is in some sense a correction,” he says. Even after rate increases, many carriers will still be paying less than they did three years ago, he adds.
But many maintain that the “buyers market” has been costly.
“Insurance is a commodity,” says Todd Spenser, executive vice president of the Owner-Operator Independent Drivers Assn. “It’s a product like anything else and
insurance companies will write a big block of business at a substantial discount just to get the business.”
In many cases, he says, they’ve overlooked a carrier’s poor safety performance. “There are some big carriers that have lots of wrecks and have been getting some pretty good rates.”
To determine if a company will insure an individual or carrier, and at what price, underwriters typically look at accident and driving records. When evaluating carriers, they also look at vehicle maintenance, training, and safety programs. When there were lots of insurance companies vying for trucking business, underwriting standards got “rather loose,” admits Joe Burton, a Calco marketing manager who puts together insurance programs for the California Trucking Assn.
Insurance companies often didn’t dig as deep as they might have in a less competitive market. Many required only minimal information about a carrier’s hiring and screening practices. Add a driver shortage which forced many carriers to put younger, less experienced people on the road, and claims were bound to rise.
“Our loss ratios (claims paid versus premiums collected) have been pretty poor lately,” says Gilles.
Some companies will likely pull out of the truck insurance business. Others are tightening underwriting standards and raising rates.The biggest increases are expected in workers’compensation, liability and, to some extent, cargo insurance.
California truckers are already experiencing the fallout of a feeding frenzy among workers’ comp’ insurers. Rates plummeted after the state repealed its minimum rate law, to the point where many insurers were selling below costs. State regulators recently took over the largest workers’ comp carrier, Superior National. Some trucking companies got hit with 25% increases, including many with good safety records and minimal claims.
One was Mike Applegate of Applegate Drayage who is now saving money through a
captive insurance group formed by Calco and CTA. Under the program a portion of each
member’s premiums are set aside in an interest bearing account to pay that member’s
smaller claims. Another portion is pooled to cover larger claims filed by anyone in the
group. Losses over $100,000 are insured by Fireman’s Fund. Those over $1 million are
covered by Lloyd’s of London.
The beauty of the plan: “In a way I now have my own insurance company,” says Applegate. “I’m not subject to the ebbs and flows of the marketplace.”
In other parts of the country, rates for liability and cargo insurance are likely to go up for truckers hauling into large metropolitan areas, like New York, Los Angeles and Miami, says Pete Pomerenke of the Truck Insurance Mart, Lenexa, KS. So far he’s seen increases of around 10%, but mainly for carriers with high usual claims and accident rates. He doesn’t think rates for physical damage insurance will change much this year -- good news for leased owner-operators who run under their carrier’s liability insurance.
One thing does seem to be certain: it’s the safe truckers who will fare best. Spencer says OOIDA won’t raise rates on any of the insurance products it offers for owner-operators and small fleets. “We insure safe operators,” he says. “We find that our members have substantially fewer accidents than trucking population at large and end up with lower rates.”
Veteran drivers with clean records may also benefit as insurers start clamping down on
screening and experience.
“It’s critical that you hire experienced drivers,” Knoedler advises her clients, mostly owner-operators and small fleets. “Some insurance companies will tolerate one year of experience, but the rates are higher.”
The “cowboys” are going to have a harder time finding jobs because carriers won’t be so quick to fill seats if it means higher insurance rates, says Pomerenke. But a good driver, he adds, will be “worth his weight in gold."