Typically, insurance premiums are referred to as either “soft” or “hard.”
A soft market cycle is characterized by low rates, high limits, flexible contracts, higher compensation and broader availability of coverages. A hard market cycle is when premiums increase and capacity for the insurance carriers decreases. This can be caused by a number of factors, including falling investment returns for insurers, increases in frequency or severity of losses, and regulatory judgements against insurer interests.
The current trucking insurance marketplace escapes simple “soft” or “hard” categorization. It’s much more complex, varying greatly based on type of risk. While trucking insurers as a whole have been consistently losing money over the past few years, some are fighting aggressively for preferred accounts.
Truckers with low severity and frequency of losses and favorable safety scores who have been operating for more than five years will find a broader range of opportunities in the insurance marketplace. This type of operation could be classified in the soft market category. Multiple standard market insurance carriers and alternative programs—such as captives or options offering large deductibles or self-insured retentions—are aggressively seeking this business.
A well-educated agent must be able to explain all these different options to the insured. For example, risk-sharing options can seem very attractive on a per-unit cost basis in the short term, but in the long term, they can potentially cause problems for an insured that is not financially stable. Collateral requirements can also pose a financial burden.
But what about distressed truckers with fewer years in business, poor safer scores, heavy losses and fast growth? For them, a true hard insurance market is at hand. Only a few carriers are willing to consider these truckers, with liability pricing coming in at 30-50% more per power unit than what an insured would be able to get from a preferred insurance program. With premiums that high, insureds must complete a cost analysis to determine whether they can even stay in business.
Most of the insurance carriers that quote distressed risks offer no coverage enhancements or flexibility—and unless an insured has stellar financials, there are no risk-sharing options. A first-dollar program may be their only option.
High-risk insurers may attempt to bring this type of insured back to operational basics in hopes of tightening up their operation and improving the risk. These types of insureds should be aware that these carriers will surcharge for any flaw while heavily scrutinizing drivers, inspections, vehicle reporting, additions to the policy and more.
In this kind of scenario, agents may want to consider teaming up with a wholesaler that deals with this type of account on a daily basis and has a significant volume of business placed with the writing insurance carrier. Together, you’ll be able to provide the insured with risk management advice on improvement suggestions that will help them obtain renewal credits, or move the trucker at renewal to another insurance carrier with lower pricing and broader coverage enhancements.
For example, consider procedure regarding motor vehicle records. Most insurers require MVRs as part of the rating process. Due to the high costs and time associated with running MVRs, many insurance carriers now only run at binding and quote “subject to”—creating a possible need to exclude drivers or add surcharges post-binding. If the driver pool is particularly poor, the insurance carrier may even issue a policy cancelation.
Depending on specific state and privacy laws, many agents are not allowed to send MVRs with submissions. But they can encourage their insureds to consider requiring their drivers to sign a waiver, then obtaining the MVRs of their own drivers on an annual basis as part of their driving employment contract with the insured. This procedure shows that the insured is actively reviewing their drivers and holding them accountable. As an alternative, an insured can sign up with a service to pull MVRs online for their drivers.
If you’re an insurance professional who works with motor carriers, visit the Motor Carrier Insurance Education Foundation online for web-based education and other resources.
Sean Koop is senior vice president of the Transportation Division of R-T Specialty, LLC, a subsidiary of Ryan Specialty Group, LLC. RT provides wholesale brokerage and other services to agents and brokers and is a Delaware limited liability company based in Illinois. In California: R-T Specialty Insurance Services, LLC License #0G97516.