Commercial Truck Insurance
What's the outlook for the market? Following is a line-by-line analysis.
Commercial auto liability: While there's still reasonable supply, albeit drastically reduced from just a few years ago, that is not to say everyone is going to find the pricing palatable. Pricing is up at least 30% to 60% from the soft market. Consequently, the incumbent agent is sweating every commercial auto price increase. Producers should know how to explain what's happened in the marketplace and to sell it and justify higher pricing to their trucking insurance clients.
For "vanilla" trucking businesses (those with good financials, acceptable claims experience, and sound and auditable safety and maintenance programs), there is commercial auto capacity at adequate pricing (adequate pricing being a relative term). The trend of sharply increasing prices for such business appears to be over. Even so, carriers are still pricing business on a per-power-unit basis rather than on a mileage-per-unit basis, which is the true exposure base.
What about nonstandard or substandard commercial auto liability business? Most certainly a hard market continues for such risks. Some insureds may go out of business for the lack of insurance availability, despite the fact that there is usually an assigned risk pool available in most states for such accounts. Where capacity is available, rates can be sky-high.
Excess/umbrella: Because of increased claims severity, rate increases for excess/umbrella insurance-when available-have been in the 50% to 100%-plus range. Indeed, many excess/umbrella insurers now require $2 million in underlying commercial auto liability. At the same time, most reinsurance treaties for this underlying coverage limit per-risk capacity to $1 million CSL. Can you say Catch-22?
As a result, many truckers are forgoing excess or umbrella coverage unless a shipper or manufacturer requires it. Since loss severity will continue in the short term, absent meaningful tort reform, it is apparent that many truckers are underinsured for liability loss. One adverse judgment exceeding the primary limits could bankrupt a trucker.
Workers compensation and occupational accident: Workers compensation for truckers is in even worse shape, and capacity is limited whether the risk is vanilla or not. As with commercial auto liability, there has been a flight of capital from workers compensation. Availability increasingly is being geared to radius-restricted business; the farther the trucker is away from the state of domicile, the tougher it is to find a voluntary market. General-lines agents have a better opportunity to write this business than transportation insurance specialists, as they may be able to get a standard carrier to write the business as an accommodation.
Since owner-operators in some states are not required to carry workers compensation insurance, occupational accident with contingent workers compensation has been seen as an alternative. While such coverage had been readily available prior to Sept. 11, 2001, now it too is drying up. Some agents mistakenly have tried to sell this coverage as a substitute for workers compensation, which it certainly is not.
Many workers compensation carriers insuring trucking companies are now demanding the payroll for all owner-operators or certificates of insurance showing that all of a trucking company's owner-operators have workers compensation insurance. If no insurance is in place, carriers will pick up the owner-operator payroll at audit and charge the trucking company for it. This is causing a huge problem between truckers and their agents. Furthermore, truckers involved in moving and storage and those using lumpers (independent contractors that unload trailers) are finding less capacity for workers compensation insurance.
Physical damage: All is not lost, however, when it comes to truckers insurance. Unlike the markets for primary commercial auto, excess/umbrella, and workers compensation lines of insurance, the market for physical damage insurance seems to be softening. Rates in the range of 2% to 4% per $100 of coverage are quoted regularly.
In the past few years, physical damage insurance has been profitable for many carriers. Ample capacity is available in both the admitted and surplus-lines marketplaces. Irrespective of its financial capability and claims experience, a trucking risk usually can get a physical damage quote.
Some admitted carriers that quote commercial auto liability are also demanding the trucker's physical damage business. The rates they charge for it usually are higher than the market average, which helps these carriers hedge any commercial auto liability shortfall. Despite this factor, we see physical damage rates continuing to soften overall.
With premiums hardening for many other lines of coverage, we cannot understand why more agents are not recommending physical damage coverage with higher deductibles or retentions. The knowledgeable agent realizes that truckers collectively are paying physical damage insurers not only for claims but also for associated loss adjustment expense and a profit percentage. Consequently, higher retentions make sense. Moreover, they can help offset price increases on the other lines of insurance.
Motor truck cargo: The motor truck cargo (MTC) marketplace has softened somewhat. It is dominated by package carriers that write the commercial auto liability, physical damage and general liability insurance in conjunction with the motor truck cargo coverage. The coverage also is available from inland marine carriers, which generally offer better coverage forms. However, these carriers want MTC to make up a set percentage of their overall marine books of business. If they get too much MTC, they start writing less of it.
The main cargo underwriting parameters are financial viability, claims experience, types of commodities hauled and limits requested. Financial viability is of paramount concern to cargo underwriters, since insurers are responsible for all losses up to the filing limit of $5,000 per claim, including losses beneath the deductible (frequently called OS&Ds-overages, shortages, and damages). For risks that do not pass financial muster, capacity is limited indeed. The Central Analysis Bureau provides financial benchmarks for the trucking industry that most insurers regard as gospel relative to financial underwriting.
If a trucker passes financial muster, claims experience becomes the most important underwriting factor. The entire motor truck cargo industry is shying away from truckers with high claim frequency. As with physical damage insurance, agents would do well to encourage higher deductibles.
When the account passes both the financial and claims benchmarks, the commodity breakdown and limits profile become important. Certain commodities like liquor, tobacco, consumer electronics and clothes, which have a high propensity for theft, can be hard to insure. Carriers shy away from auto haulers and truckers who haul heavy equipment, due to the limits profiles of such accounts. Telling an MTC underwriter that your insured is hauling computers-which offer the double whammy of a high theft exposure along with a high limits profile-is a great way to get the underwriter to hang up the phone and move on to the next risk.
Truckers have done little to convince cargo insurers that they can protect unattended vehicles and their cargos from theft. Consequently, more and more carriers are excluding this exposure via endorsement. Too often, agents may not be making truckers and their shippers aware of this development.
In the motor truck cargo marketplace there is ample capacity for "vanilla" risks. Increasingly, carriers will be unable to raise rates for such accounts or to renew them as expiring. But for the "non-vanilla" risks-those with some of the characteristics we've just described-there continues to be little capacity available, and no major improvement is expected in the near future.
Ancillary coverages: In regard to the other coverages a trucker may need-general liability, property and non-trucking insurance-there is not much to report. These lines have generally been profitable and we have seen little hardening in the marketplace. Ample capacity is available.