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The Road Ahead: Commercial Auto Market to Continue to Firm

The RPS U.S. Transportation Market Outlook examines industry factors such as rates, trends, gaps in coverage and the impact of COVID-19 on the trucking industry.
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the road ahead: commercial auto market to continue to firm

As the commercial auto insurance industry continues to struggle with a myriad of challenges that have influenced premium rates over the last decade, plus the impact of the coronavirus pandemic, the current market firming is expected to continue during the second half of 2020.

While coronavirus boosted activity in some segments of transportation, it halted activity in other areas. What remains to be seen is the pandemic's effect on losses during the remainder of the year.

Insurance carriers have struggled for so long from a loss perspective, and the pandemic has allowed them to catch up a little. But it's more of a reset than an ability to lower rates and bring a soft market.

Years of underperforming combined ratios have forced insurance carriers to pass on double-digit premium rate increases, which have risen 10-15% year-over-year since 2010.

The trucking industry has influenced the rise in premium rates more than other commercial auto classes of business, due to the constant exposures of being on the road every day. Other contributing factors include an aging workforce, driver shortages, nuclear verdicts, freight demand, maintenance expenses, poor infrastructure, distracted driving and more.

In addition, there is limited capacity in the standard market, especially for distressed fleets with poor loss experience and unacceptable safety scores. This has led to a greater reliance on transportation specialists in the excess & surplus market.

The RPS U.S. Transportation Market Outlook examines industry factors affecting rates, trends across different segments, gaps in coverage and the impact of COVID-19. It also emphasizes the importance of a focus on safety to remain profitable for the long-term. Here are some highlights from the report. 

Trends in Trucking 

Fleets have advantages in pricing over non-fleets. While they generally have higher limits, fleets also take on more risk with higher deductibles and self-insured retentions than non-fleet companies. The size of the fleet makes a difference as well. Medium fleets of 20-50 units have greater budgets than smaller fleets to commit to safety and compliance, a key factor in reducing premium rates.

Fleets also tend to be loyal to one insurance carrier, which can lead to favorable pricing. “Long-tenured fleet clients with good loss control and professionally managed operations will typically see less of an increase in premiums," says Andrey Miterin, RPS transportation and commercial auto manager, Northeast and Mid-Atlantic region.

Other trends across segments of trucking include:

  • Dry vans are viewed more favorably by insurance carriers because they have cargo sustainability, but those hauling high-theft and high-damage items, such as electronics and pharmaceuticals, carry higher limits of $250,000-$400,000.
  • A spoilage endorsement for refrigerated haulers has a limited market due to its higher exposure. In the majority of cases, purchasing spoilage increases the cargo premium by 10 percent or more.
  • Intermodal truckers experience high driver turnover, mainly caused by a high concentration of trucking companies located around major port areas, all competing for the same driver pool. “Drivers will switch companies based on pay structure, sign-on bonuses and better benefits," Miterin says.

Trends in Public Auto

One of the fastest-growing classes of business in public auto is non-emergency medical transportation, but due to the health risks of passengers and the safety equipment on board, it's also more challenging to place, resulting in tightened terms and conditions.

Another rapidly evolving class of business is ridesharing. While insurance carriers have been resistant to provide coverage, that may change in the near future. Insurance carriers are learning how to adapt to the trend, and as they become more comfortable, more markets will open up.

Gaps in Coverage

Thin profit margins prohibit many trucking companies from purchasing extra insurance protection, including cyber and excess policies, even when they know the financial consequences of refusing coverage.

From telematics to back-office financial software, trucking is a present and increasing target for cyberattacks. And the biggest threat today is ransomware, according to Steve Robinson, national cyber practice leader, RPS.

Robinson advises agents to “change the narrative for cyber insurance away from data breaches and toward business continuity." This includes helping transportation clients understand their dependence on computer systems, telematics and third-party vendors, as well as the revenue that would be lost if such an attack debilitated their system for several days. 

Another necessary but frequently overlooked coverage is excess insurance, brought to the forefront by the proliferation of nuclear verdicts. Even knowing the risks, not all truckers are taking advantage of this extra protection. Most small-size trucking companies only purchase excess liability coverage if required by a direct shipper of third-party logistics. And while larger fleets are more likely to carry excess, many do not—primarily due to cost, according to Miterin.

Outlook Ahead

In response to the impact of coronavirus on certain segments of transportation, insurance carriers have reduced premiums, deleted units or waved monthly minimum reporting for mileage, receipts or units.

These adjustments help in the short-term, but there are also measurements agents are recommending to help transportation clients remain profitable long-term, stressing a focus on safety. 

“Safety scores are the gatekeeper in determining pricing," says Mike Mitchell, area president, transportation practice, Southeast region, RPS. Poor safety scores have a detrimental effect on the driver and motor carrier company and can lead to a denial of insurance coverage or influence a jury in court.

It is pertinent for transportation companies to invest in and commit to using telematics, appoint a safety director and hire quality drivers, as well as properly document all safety measures. “When there are losses, insurance carriers want to see corrective measurements in place. They will ask: Is leadership investing time and money into long-term safety improvements or are they only implementing measures until the losses improve?" Miterin explains.

Proper documentation not only proves the client's commitment to safety and training, but it also streamlines the process to obtain insurance quotes. It is instrumental for agents to provide us with enough narrative and background on the attributes of the truck line and any improvements their clients are making, to help us place their business with our carrier partners.

Mark Gallagher is national transportation practice leader at Risk Placement Services (RPS). RPS is one of the nation's largest specialty insurance products distributors, offering valuable solutions in wholesale brokerage, binding authority, programs, standard lines, and specialized auto, through its Pronto Insurance brand.

Monday, August 31, 2020
Commercial Lines