There has been a lot of anecdotal commentary about rising insurance costs putting a growing crimp of the bottom lines of trucking firms. Often, this commentary has been paired with discussion of the large increase in so-called “nuclear verdicts” against truckers – damages in the many millions of dollars for severe injuries or death from accidents involving a truck. (See A Look at Nuclear Verdicts against Carriers by ATRI.)
Supply Chain Digest Says...
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| Many measures taken seem to have little impact on rates, though they may reduce the number of accidents and thus deductible costs and even higher rates for a poor safety record. |
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In a new research report on insurance costs from the American Transportation Research Institute (ATRI) notes that "Rising rates in the commercial insurance market pose a challenge to motor carriers of all sizes and sectors, regardless of safety records.”
The new report “offers strategic insight into the causes and impacts of rising insurance costs,” ATRI says.
The report starts by noting that the most recent ATRI annual “Analysis of the Operational Costs of Trucking” report found that insurance premium costs per mile increased overall by 47% over the last ten years, from $0.059 to $0.087. It also found that the rate of insurance cost increases from 2009 to 2018 far exceeded the increase in crashes involving trucks.
The growing size of damage awards is not surprisingly a key factor, the report says, adding that “cases venued in highly litigious states such as California, Michigan, New Jersey, and North Carolina, for example, had average litigation payments over 50% larger than the national average.”
And that is in part why insurance companies have been losing money on the trucking sector business –naturally causing them to raise rates.
“Underwriting losses persist, despite reaching a ten-year low during the coronavirus pandemic in 2020, due to high claim severity,” the report notes.
Rates are rising for almost all carriers, but any carrier experiencing an uptick in crashes or a particularly expensive lawsuit are seeing their insurance cost soar.
This new report is based on a survey of 82 trucking firms represented 94,555 truck tractors, straight trucks and specialty trucks with an accumulated total of 7.5 billion miles driven in 2020.
The report looks at the effective costs per mile of insurance, and there are some interesting data points.
As can be seen in the graphic below, small carriers averaged a very high 12.5 cents per mile in insurance costs in 2020, versus a much lower 3.7 centers per mile for “very large” fleets (not defined):
Source: ATRI
“Small fleets continue to pay more than twice as much per mile in premiums as large fleets, which pay almost twice as much per mile as very large fleets,” the report notes.
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So rising insurance costs may be something of an issue for large carriers, but they are a huge cost factor for small and medium sized fleets.
The report notes that many truckers are trying to reduce their insurance costs by shrinking coverage of over $1 million in claims, increasing the size of deductibles, and using self-insurance.
The data also showed carriers with strong safety records did not see that translate into lower insurance rates, as “premium increases are largely due to factors outside of a carrier’s experience rating.”
Meanwhile, carriers have not surprisingly been investing in new safety-related technologies. For example, 82.9% of carriers said they had purchased “road facing cameras,” while 46.1% invested in “speed governors,” just two of more than 10 types of technology some carriers said they were acquiring.
The report also notes the impact of “social inflation,” or the increases in claims costs beyond economic inflation, as an important factor in rising rates. More specifically, this involves “the change in public opinion relating to allocation of negligence.”
Is there an answer for truckers? Many measures taken seem to have little impact on rates, though they may reduce the number of accidents and thus deductible costs and even higher rates for a poor safety record.
“The myriad direct and indirect factors that place upward pressure on insurance costs could continue for quite some time, particularly if and when traffic levels, truck-involved crashes and thus insurance claims return to pre-COVID-19 levels,” the report concludes.
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