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Why Have Commercial Insurance Costs Shot Through The Roof?

You would think that with all the new safety technologies being equipped on modern commercial motor vehicles these days that commercial motor vehicle insurance should be lower than ever. Unfortunately, you’d be wrong. If anything, they seem to be on a never-ending upward trajectory.

Whether you are an owner-operator or one of the largest fleets in the trucking industry, insurance costs are going to put you in a pinch. But why?

For many fleets, a major expense item is represented by specific claims on the insurance line. Yet, this increase is not because there have been more accidents, but rather a result of inflation and rising trucking industry litigation costs. Even for a fleet not impacted by these factors will see a hit in their insurance.

So, what’s the total cost? Well, for 2016 alone, more than $700 million in claims were made against commercial motor vehicles, including trucks., according to a report completed by American Public Media’s Marketplace. These losses directly translate into rising premiums for industry businesses.

According to another report completed by a San Diego-based insurance group explains that over the last few years, there have been almost uninterrupted rate increases, for both small and large motor carriers, no matter the insurance type.

Fleets across the nation have been hit with higher premiums as a result. Whether local, long-haul, general freight, reefer or otherwise, everyone is feeling the pinch. Of course, some business lines see a more rapid rise than others, but no industry player is spared.

A Confluence of Factors

The reason why this is happening can be seen in several factors that all converged at the same time. First, it is critical that you understand how insurance works. Insurance companies generally make money in two different ways.

First, they profit off underwritten policies. Second, they invest customers’ premiums. Now consider that it can take up to seven years to close a claim. As a result, insurance companies will sometimes have to play the long game, with seven years to make money in the premiums paid until the claim must be settled.

Why does this matter? Remember the two ways insurance companies make money. If they aren’t making it on underwriting, they must make it back investing in the premiums paid. Since margins are so low on either, if there are inflationary trends or a greater number of claims coming in, the insurer has little choice but to hike rates to stay competitive.

In today’s case, these headwinds remain. Return on insurer investments have been low, which forces them to then look to make that money back on the policies they underwrite. Insurance costs to cover accident claims have also spiked in recent years.

Why? Because the economic recovery has put a lot more cars and trucks on our nation’s roads, which – by the law of averages – results in a higher rate of accidents.

It is true that highway fatalities had been on the decline for nearly a decade, thanks to safety advances, seat belt laws, new braking systems, and so much more. But in recent years, as we’ve reported, fatalities have risen alongside the rising national economy.

Shouldn’t Safety Cancel Out Increased Traffic?

One question on the mind of many an industry insider surrounds the reasons why fatalities have increased. Conventional wisdom says that even if there is more traffic on the roads, a far richer safety technology environment should mitigate any added risk, right? Wrong.

Remember, safety technology has come a long way, but so has technology in general. People behind the wheel are more distracted than ever, whether through a big, shiny tablet or smartphone or an in-dash entertainment system.

The increased frequency at which these technologies have invaded the space inside our vehicles directly correspond with an increased accident rate. When insurers evaluate claims, they do so based on the number of fatalities or severe injuries in an accident. Since 2010, the severity metric has been rising.

As trucks become more complex by the day, the costs associated with repairing such vehicles also rises. Since healthcare costs have also been rising at a rapid rate, situations where medical attention is required generates even more expense in litigation.

Believe it or not, insurance prices can also be directly correlated with the truck driver shortage. Since trucking companies have been hiring more and more younger, inexperienced truck drivers, accidents are happening in greater frequency. Truck drivers under 30 tend to get into more accidents than those over 30, and that trend is reflected in rising premiums.

Since there are few haven investments for insurers, as loss number increase, insurers are increasing truck insurance rates at a rapid clip. For insurance rates to fall, the insurance industry will need to see one or both of their income streams have a better long-term outlook.

This means insurers will have to start posting profits for several quarters before fleet premiums begin to drop. Any new insurance companies will likely face the same headwinds current market participants do, so added competition would do little to drop rates.

There is no Easy Answer

The problem is that there is no easy answer. It is a multifaceted issue. While continuing to increase safety technology usage is a start, it won’t go all the way. Whether it be through a reduction in distracted driving or a lowering of health insurance, a noticeable change in several factors would certainly help.

Consider that distracted driving is an easy one for fleets to address. One way is through creating and enforcing a policy banning cell phone use while driving. There are even apps that can be installed that will shut the phone down when the vehicle is in motion. Better training and incentives also go a long way in decreasing distracted driving.

Another problem easily addressed by a fleet, whether through technology or otherwise, is speeding. Fleets have turned to speed limiters, telematics, video-based training or otherwise, ensuring fleet vehicles run at a safe speed is not difficult.

It Isn’t Always a Novice Trucker

For many fleet managers, the automatic assumption when an accident occurs is that it was the work of a novice truck driver. Yet, it is just as important to pay close attention to behaviors of truck drivers who have been with the business for a long time.

As a matter of fact, the longer a truck driver gets away with a bad habit, the more ingrained and harder changed that habit becomes. Far too often, experienced truckers fail to take “near-miss” accidents seriously. When bad truck driving behaviors become hard-wired, crashes occur.

The best way to mitigate this effect is to address truck driver complacency in your training programs. Don’t hesitate to appeal to your truckers’ values and priorities as truck drivers. Make operating as safely and professionally as possible rewarding for your truck drivers. By showing them the impact they have on the road, you may get greater buy-in for your safety initiatives.

Relying on Safety Equipment

At some point, the rise in advanced safety technology use in trucking is going to start counteracting other factors that have results in insurance premium increases. Telematics, video and other safety technologies helps stop unsafe driving behaviors and provides guidance on how such behaviors should be addressed.

Another place where safety can play a key role is in spec’ing your vehicles for safety straight from the manufacturer. If anyone is taking safety technology seriously these days, it’s the OEMs. Utilize their expertise to your advantage.

There are seven major areas where safety technology can help you radically reduce your insurance premiums:

  1. Anti-lock brakes
  2. Stability control
  3. Lane-departure warnings
  4. Blind-spot warning devices
  5. Collision-avoidance systems
  6. Camera systems
  7. Sensor systems

GPS tracking technology has also proven itself in this arena. Stolen or lost freight does no favors for your insurance premiums. Having the technology in place to ensure your fleet assets can be tracked at all times will help lower costs.

In the case of lost or stolen vehicles, it is notable that law enforcement assigns a low priority to these cases. So, having technology in place that essentially does the job for them could help you big time in the long run.

In fact, fleets who choose to utilize GPS or other advanced safety technologies may find themselves on the receiving end of special rates or policy discounts from their insurer. Insurance companies often refer to these as anti-theft devices and the more of them you have installed in your fleet vehicles, the better.

In states where it is compulsory for insurers to offer discounts for using advanced safety technologies, installing them seems like a no-brainer, yet too few fleets actually do.

Is your fleet suffering under the burden of high insurance rates? If so, consider what you are doing to enhance the level of safety and security in your fleet. Are you doing enough to lower rates? Of course, there are many factors outside of your control, but that doesn’t mean you shouldn’t try.

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