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Trucking Insurance: Information Paving a Way Out of Hard Market

After years of bad news about insurance for the trucking industry, insurers and truckers alike may have reason to feel bullish about the remainder of 2021. The source of optimism can be summed up in one word: information.

Nuclear verdicts in liability lawsuits – the No. 1 cause of the hard market for insurance – remain a problem, though the recent Texas Senate passage of a reform bill aimed at curbing lawsuit abuse is encouraging to many in the trucking industry. A shortage of experienced truckers by many accounts remains a problem, though how big a problem is subject to debate.

But information – largely from telematics feeding data to drivers, employers and insurers – offers an opportunity to improve safety, contain premiums and promote efficiency. Combine the use of analytics with the information an insurance professional who knows the trucking industry and understands the needs of your business can provide, and you have all the elements of a performance-based Property and Casualty program that will enhance, rather than impede, your business.

While the hard market for Commercial Auto Insurance and other Property and Casualty coverage may not be a thing of the past, information is paving the way toward better conditions for the trucking industry.

Market Cycles and Nuclear Reaction

As Alera Group noted in our 2021 Property & Casualty Market Outlook whitepaper, 10 consecutive years of Commercial Auto Insurance underwriting losses – culminating in $4 billion in losses for 2019 alone – made a market correction inevitable. Many carriers ceased providing coverage to truckers altogether, and those who remained in the market raised rates to help offset the losses. Fewer carriers resulted in fewer options for truckers and trucking companies, while underwriters still in the market increased scrutiny and selectivity.

Because Property and Casualty, like most markets, is cyclical and the P&C market had been generally favorable toward buyers for years, a correction was due to happen. Nuclear verdicts – defined as lawsuit awards that surpass $10 million, and influenced by the phenomenon known as social inflation – helped turn a mere correction into a detonation.

As CNBC reported earlier this year:

According to data analyzed by the National Safety Council, just over 5,000 large trucks were involved in fatal crashes in 2019, a 43% increase from 2010. The number of injuries associated with truck crashes rose 7% that year to 160,000, with the majority being occupants of other vehicles.

Jury awards for crashes are also skyrocketing. When considering verdicts of more than $1 million, the average size increased nearly 1,000% from 2010 to 2018, rising from $2.3 million to $22.3 million, according to a study last summer by the American Transportation Research Institute.  

The effect of nuclear verdicts has been mitigated somewhat by the COVID-19 pandemic, with reduced motor vehicle traffic contributing to a sharp decline in claim frequency. But the rise in claim severity has continued unabated, as Claims Journal recently reported, threatening to erode recent insurance industry gains.

Changing Attitudes Toward Technology

Claims Journal based its story on a recent report by Fitch Ratings, in which the Big Three credit stated: “The commercial auto insurance segment posted the best underwriting result in a decade, with a combined ratio (CR) of 101.6% for 2020, nearly 8 percentage points better than 2019. Consecutive large renewal rate increases and a sharp reduction in driving activity tied to the coronavirus pandemic contributed to this change.”

The gradual return of vehicular traffic to pre-pandemic levels is likely to reverse the reduction in claims, but this is where information from telematics and other forms of technology come into play.

“Technology offers some hope,” Claims Journal noted. “Fitch said developments in global positioning systems, sensor technology and telematics allow trucking companies to better monitor driver behavior and vehicle use. Electronic logging devices required by the Federal Motor Carrier Safety Administration adds to an abundance of data.”

Insurance Business magazine delves more deeply into this topic in its May 24 article “Telematics tools have a ‘really good return on investment.’”

Citing a gradual embrace of technology after initial fears that the gathering of data would be too expensive and give “Big Brother” too big a role in the trucking industry, Insurance Business reports, “Trucking companies and fleet operators have started to realize the benefits of telematics solutions, and they now welcome technology for its positive safety and operational impacts.”

The information telematics tools provide include data about vehicle location, driver behavior and engine diagnostics. Interior and exterior video complement the data by enabling trucking companies and fleet managers to review events and make real-time observations that can protect both the company and the driver. This information also can be used to counter emotional appeals to juries with analytic and video evidence of what actually happened in an accident that led to a lawsuit.

In addition, drivers like the automated completion and submission of mandated logs, which relieves them of one often tedious but important task.

It’s also worth noting that increased vehicular traffic – particularly from long-haul, heavy construction and local delivery drivers – isn’t in and of itself a bad thing. If more trucks are rolling, that means more policies, more endorsements and more premiums for insurance carriers. That, in turn, provides incentive to carriers to enter or return to the market, providing truckers with more options and increasing competition among carriers for their business.

And because telematics and video are such useful risk management tools, a company that uses them is appealing to underwriters in the insurance marketplace.

The Value of a Trusted Advisor

Here’s something else underwriters appreciate: insurance agents and brokers who have built strong relationships with clients and carriers.

Underwriters value stability and transparency. They don’t like sloppiness and uncertainty. While an established agent or broker lends credibility to a client, an inexperienced or insufficiently prepared one can cause lasting damage. Once a carrier rejects a poorly completed application, that carrier is essentially off-limits to the applicant – regardless of whether the applicant hires a new broker.

An experienced, knowledgeable broker also is able to write Commercial Auto Insurance coverage not simply as a complete and comprehensive policy but as one important component of a customized Property and Casualty Insurance program – one designed to the specific needs and objectives of your business.

Even if your business has yet to adopt telematics, for example, you’re exposed to multiple cyber risks, including ransomware attacks that could bring your entire fleet to a screeching halt. Well-designed Cyber Insurance coverage enables you to manage the risk of attack and get back up and running in the event a breach does occur.

To learn more about Cyber Insurance, view the Alera Group webinar “Cyber Security: What to Do Before and After a Breach.”

VIEW THE WEBINAR

About the Author                             

Paul Bondar
Managing Partner
Bondar Insurance Group, An Alera Group Company

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