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Nuclear Verdicts Take Their Toll on Trucking Insurance

Rate increases over the past decade, higher loss severity and a myriad of regulatory changes have made the commercial trucking insurance market almost impossible to navigate.
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In the commercial trucking insurance market, insurance carriers have been dropping like flies. With fewer and fewer carriers willing to write trucking risks, especially the more depressed risk, rate increases over the past decade, higher loss severity and a myriad of regulatory changes have made the market almost impossible to navigate.

In recent years, trucking has reaped a “negative return on investment for insurance carriers,” says Tommy Ruke, TRS, CIC, cofounder of the Motor Carrier Insurance Education Foundation. As a result, “the market has done two things: raised the price overall, even on a good risk.”

“And then, they’re being more selective. If the insurance carrier is not comfortable that the company is safety conscious, they don’t want to do business with them,” he adds.

The market has witnessed rate increases in the “high single digits” and “frequently double digits across the board, no matter the kind of risk,” says Nick Saeger, assistant vice president, Transportation Product, Pricing & Underwriting, Sentry.

“In commercial auto in general, we haven’t seen profitability since the turn of the decade,” Saeger continues. “We haven’t posted a combined ratio under 105 since 2014 and it hasn’t been under 100 [since 2010]. I think the most recent estimates I’ve seen for 2019 are something like 107, despite some of the rate corrections that we’ve seen in the marketplace.”

In addition to issues connected with distracted driving and a shortage of experienced drivers, the prominent rise in a higher frequency of severe losses is due to “nuclear verdicts,” which is substantially adding to the difficulty of doing business in the trucking market.

Nuclear verdicts—where a defendant is left feeling hard done by when handed a settlement fee in the tens, and often hundreds, of millions of dollars—is something that motor carriers and insurance carriers alike have grown accustomed to.

For example, about three years ago, a pickup truck jumped the median and hit a trucker head-on, explains Ruke. “The driver of the truck did nothing wrong—they were within the hours of service and they were in line with all the regulations—but the jury awarded $91 million to the other party,” he says.

“In the report, it said that earlier that day there was a prediction of inclement weather and the trucking company’s guidebook says that if the weather is bad, they must take the trucks off the highway,” Ruke says. But despite the warning, “there was no adverse weather on the road,” he adds.

Nuclear verdicts are happening “more and more frequently and with more and more severity,” says Saeger. “There was a stretch earlier last year where every case brought a higher verdict. One of the largest ones was $289 million.”

“On top of that you’ve got juries who are kind of numb to those large settlements and aren’t afraid to pass those verdicts out, which is something we’ve taken to call societal inflation,” he says. “And then, there’s litigation financing—where investment funds invest in an attorney’s cases—which ends up bringing more cases to trial and drives up the cost of litigation.”

Litigation financing and using a motor carrier’s guidebooks against them in the courtroom are prime examples of the tactics attorneys are using to sow havoc in the trucking market. “Attorneys are truly underwriting claims,” says Dan Clements, director of sales, Transportation, Sentry.

“They’re looking at the drivers and the company’s retention efforts. They’re asking: Are they punishing bad behavior? Is the vehicle being well maintained? Do they have a drug and alcohol program?” he says. “Attorneys are saying, ‘This driver has two years of experience, but your guidebook says drivers must have three. Why did you hire them?’”

Meanwhile, technology and vehicle telematics programs continue to have an impact on the trucking market. Truckers are already required to track hours of service using an electronic logging device (ELD). But now, insurers can “reward safer drivers with better rates based on their driving history,” says Jochen Schunter, truck product manager, Progressive Insurance. “This is a game changer since insurance is the fourth largest expense for a trucker and these savings can be significant.”

States are also beginning to wake up to how technology can increase driver safety and many states are “expanding ELD mandates beyond long haul and interstate trucking,” says Schunter. “Texas, California and Florida, three of the biggest trucking states, are each planning to adopt new hours of service rules requiring an ELD, even for short-haul and intrastate-only operations.”

For independent agents, “it’s really about the proactive efforts that you can take as an agency to educate your customers,” Clements says. “Agents should, and a lot do, take advantage of the opportunity to educate customers about what’s going on.”

Will Jones is IA senior editor.