Today, we want to begin a two-Part series examining rising insurance costs and what trucking companies can do to mitigate those costs. Consider that you don’t have to have a crash or injury on your books to still have to pay insurance fees. You still must ensure you are getting the lowest reasonable costs for your needs and not at risk of going out of business just to cover insurance costs.
The problem is that obtaining affordable commercial insurance coverage is becoming more difficult by the day. As new trucking companies hit the scene, they are finding it a tall order to find insurance that doesn’t break the bank. Even worse, there aren’t enough routes out there now to help motor carriers pay for exorbitant premiums.
As premiums continue to climb, the reasons are multi-faceted. There are numerous “risk factors” that insurance underwriters look at and the one that is weighing heavily on the entire industry is that of nuclear verdicts. These are litigation verdicts that could put a trucking company out of business and have ripple effects across the industry.
Yet nuclear verdicts are not the only issue. Trucking companies have a lot on their mind when it comes to insurance and costs related to it. Let’s take a deeper dive into the issues facing trucking companies and their insurers.
Insurance a Top Issue
With the COVID-19 pandemic upending the supply chain, trucking companies have enough to worry about without insurance premiums causing a headache. And yet, that is exactly what they do. The COVID pandemic has also resulted in an increase in liability lawsuits and increased workers’ compensation costs. Trucking companies must content with a wealth of liability issues in the age of COVID, and they know it.
According to the American Transportation Research Institute’s (ATRI) 2020 survey of top issues fleet managers dealt with in 2020, the cost and availability of insurance ranked in 5th place. With so many issues laid at the feet of fleet managers nationwide, it is not insignificant that insurance ranked in 5th place.
In its latest annual Operational Costs of Trucking report, ATRI also found that fleets have been incurring substantial insurance costs over the last several years, and that we may have reached a ceiling in what fleets can afford. After all, trucking companies can only afford annual double-digit increases in insurance premiums for so many years.
The data also shows that insurance premiums for trucking companies typically had been on the rise for over 25 years until 2012. It was not until 2012 that the trucking industry recorded its first appreciable drop in insurance premiums. Since then, they have fluctuated, but took their biggest dip from 2018 to 2019, when they dropped from 8.4 cents per mile to 6.8 cents per mile. But why?
Well, don’t think the insurance companies took a haircut. A lot of that comes through restructured products. Trucking companies are now assuming much higher levels of risk through higher deductibles and lower levels of excess liability coverage.
Many industry analysts expect insurance costs to continue their rise, but that the rate of rise will slow. A lot of the slowdown in rate increases is causally related to fleets adopting safety-first strategies, adopting safety systems, and adjusting policies to increase safe driving.
Nuclear Verdicts Take Center Stage
Fleets will need to take all the help they can get through the application of safety technologies, because nuclear verdicts are upending insurance pricing. Nuclear verdicts are defined as huge settlements awarded to plaintiffs after an accident-related trial. For better or worse, the sizes and amounts of awards in truck-related accident trials has been rising precipitously for some time.
The good news is in tort reform efforts in states like Iowa, where discussion of a party’s insurance coverage is left out of punitive damage discussions. Many state legislatures across the country are taking a closer look at tort reform where trucking companies are concerned. Advocacy organizations like the American Trucking Associations (ATA) and the Owner-Operator Independent Owners Association (OOIDA) have been pushing for insurance-related tort reform for a long time.
Still, it is important to note that the most important party to insurance premiums are trucking companies themselves. Because if you are allowing things like poor vehicle maintenance or substandard training programs to linger in your organization, it may very well end up being your fault if your insurance premiums rise.
And consider the damage you do to more than yourself if lax safety and maintenance standards cause an accident on your watch. When you are subject to litigation and giant awards, it increases insurance rates for trucking companies across the board. That is why nuclear verdicts are so concerning, and not just for the trucking companies who are subject to them.
Insurance costs are also heavily influenced by market availability and the shrinking pool of experienced truck drivers. With costs on the rise from distracted driving, expect it to be more difficult than ever before to find the right people while keeping insurance costs low.
What is the Popular Sentiment?
The popular sentiment among trucking companies is that the commercial auto insurance market is broken. Simply put, the nexus between high verdicts and insurance premiums is way out of whack. In the past five years especially, the total cost of risk has risen by double digits. Ten to twenty years ago, runaway verdicts were not commonplace. In some cases, we have seen runaway verdicts in cases where there was no serious injury.
Unfortunately, many fleets today cannot afford a straight guaranteed-cost program that transfers all the risk to the insurer. Policies like that are increasingly rare in today’s market, but they are exactly what trucking companies need. Premiums are simply not reasonable enough for small to medium size trucking companies to afford.
The question is, what is causing this drastic rise in nuclear verdicts? You must start with the attorneys litigating them. Put simply, the techniques plaintiff’s attorneys are using to drive huge verdicts and settlements is not being matched by the techniques used by defense attorneys. It could be we are seeing real, live litigious warfare playing out in the transportation sector.
This approach basically involved plaintiff’s attorneys appealing to the feelings of the jury by picking apart the trucking company, in many cases completely leaving out the facts of the case. There is also something many have not heard of called “litigation financing.” In these cases, a third-party may be aware of a high-level of insurance coverage and finance the attorney to push for ever larger awards. You can expect that in many of these cases, the jury likely has no idea that there is an outside third-party financing the attorneys.
Focus on Safety
The best way to stay out of the crosshairs of clever plaintiff’s attorneys is to ensure you are running a smooth and safe operation. The best strategy to combat rising insurance prices is to develop a strong culture of safety understanding and crash prevention.
If you implement and follow a detailed safety program, you will be on the right side of your insurance premiums. You must make sure you adopt policies that cover hiring, training, drug testing, firing, and so much more. You need to make sure your truck drivers follow the rules and keep a culture of safety strong within your organization. Without buy-in from your frontline workers, you are setting yourself up for failure.
Another problem lies with underqualified truck drivers. When underqualified truck drivers are hired just to fill seats, accidents can become far more frequent. Failure to follow strict hiring standards can lead to disaster. Fortunately, running newer rigs can help to mitigate that risk. But running newer rigs is not the ultimate answer. Fleet managers must employee a comprehensive strategy to keep risk low and, as a result, insurance premiums low.
Also, while running newer rigs reduced risk, they are not without their own costs. And in the event a newer rig is in a crash, it will cost you even more to repair it. This doesn’t mean you should avoid expensive rigs with lots of safety tech. There is no question that safety technologies reduce crashes. Even more, insurance companies give you credit if you utilize advanced safety technologies.
Insurance companies like it when trucking companies use things like:
- Driver-facing video systems
- Road-facing video systems
- Telematics systems
- Fleet management software
- Lane-change warning systems
- Collision-mitigation systems
There are plenty more systems and methodologies trucking companies can use to keep premiums low and the insurance hounds off their back. Join us for Part II of our two-Part series where we dig into the final themes on the topic of high insurance premiums.