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Driver shortage, rate hikes hit trucking market

semi truck

A tough insurance market for commercial trucking companies isn’t likely to change direction soon as insurers continue to raise rates, shrink limits and restrict capacity for a risk that has a history of generating big claims.

“The market continues to harden,” said Justin Joyce, Minneapolis-based president of National Truck Underwriting Managers Inc., a unit of Amwins Group Inc. 

“It’s been a heck of a ride over the last few years,” said Craig Dancer, U.S. transportation industry practice leader at Marsh LLC in Washington. “It’s been a tough time for commercial auto across the board” in a market that hasn’t seen insurers record a combined ratio under 100% in more than a decade, he added.

Insurers began pulling out of the market about six years ago as losses rose dramatically, sources say, and since then, truckers have been paying ever-increasing rates for primary and excess liability coverage. 

Rates have jumped for Lupus Superior LLC in Grand Prairie, Texas, rising around 40% for the 65-truck fleet over the past year, according to Tony Pagan, safety manager. Insurance costs per truck are about $480 per month, depending on the type of vehicle, he said.

Lupus Superior and other trucking companies are experiencing a chronic shortage of drivers, which experts attribute partly to the industry’s lack of appeal to younger drivers. Insurers have expressed concerns that inexperienced drivers could create an increased risk for accidents if training is not thorough (see related story, below).

Rate increases are leveling off, though. “It’s still going up, but not to the same extent,” Mr. Dancer said.

Some policyholders saw rates rise as much as 75% a few years ago, but increases at renewals are likely to be far lower for those with clean records, he said. “If you’re a top-performing fleet with extremely good safety protocols, excellent investment in technology in terms of collision mitigation, telematics, that sort of thing, those guys are seeing on average anywhere from 10% to 20% increases,” he said.

Exceptionally good risks may see even smaller increases, Mr. Joyce said. Companies with a strong safety culture, favorable loss experience and strict hiring standards may see increases under 5%, he said.

Rate increases continue partly because trucking accidents have become very expensive, experts say. 

“Nuclear verdicts” are being awarded to plaintiffs in truck accidents in “any number of jurisdictions,” and insurers are raising primary and excess rates as a result, said Matthew Payne, senior vice president, and transportation and energy team leader at Lockton Cos. LLC in Kansas City, Missouri. 

National Truck Underwriting Managers considers anything over $10 million a nuclear verdict, Mr. Joyce said. “They’ve become much more prevalent,” he said. 

Ten years ago, insurers didn’t worry much that an excess layer would be pierced but settlements today can reach into the tens of millions, even if they involve conscientious drivers and “close to zero contributing factors other than they happen to be on the road,” he said.

Large-fleet companies that have been hit with huge settlements will see rates jump 25% to 75%, according to Mr. Dancer.

As large verdicts and other factors have pushed up rates, many trucking companies are buying less coverage, he said. “Some who bought $100 million three years ago are now down to $30 million. And that $30 million costs more than what they were paying for $100 million.”

Trucking companies are required to carry at least $750,000 in liability limits and most prefer to carry at least $1 million, with large fleets purchasing upwards of $100 million in coverage, sources say.

“It takes quite a few insurance companies to build up to that limit,” Mr. Payne said. Smaller limits are easier to find in the excess and surplus lines market, depending on the buyer’s loss history, he added.

Many buyers are hard-pressed to get more than $1 million in primary coverage, said Gary Flaherty, vice president of E&S commercial auto with Nationwide Mutual Insurance Co. in Scottsdale, Arizona. Higher limits are available but for the risks that are “the best of the best,” he said. 

Excess insurers are reluctant to attach at lower limits, Mr. Joyce said. Those that offered $5 million in coverage above a $1 million primary layer in previous years are more likely to attach at $3 million or $4 million, he said. “And all the while, as you build that tower, the rates today as compared to five years ago continue to go up.”

Excess capacity has shrunk to less than half of what was available several years ago, Mr. Dancer said. “That has corresponded in the excess market to increases in rates of 50% to 200%.”

Some new capital, attracted by high rates, has entered the market, sources say, but it is not enough to soften conditions.

“New capital has come in, especially on the excess side,” said Mr. Payne of Lockton. Domestic excess and surplus lines insurers have committed capital, as have insurers in London and the Bermuda market, he said. “We’re still seeing rates increasing, so I wouldn’t say the new capital has created a competitive environment.”

In-truck cameras, telematics and loss-avoidance technology are important tools for risk managers, along with rigorous driver training, sources say. Apart from those, they note, partnering with an insurer that understands the business is an effective loss-control approach.

Commercial fleet underwriters take hard look at operator experience 

Insurers are looking closely at trucking companies’ training and hiring requirements when underwriting the risks during a worsening driver shortage.

“Training is a concern,” said Mark Gallagher, vice president, national transportation, for Risk Placement Services Inc. Companies that have comprehensive training programs in place and clean safety records will find insurers are more comfortable writing coverage for a younger and less experienced team of drivers, he said. 

New workers are hard to attract in an industry that requires extended time away from home and irregular schedules, which causes problems when experienced drivers are retiring or moving among competitors offering high wages in the tight employment market. 

“I think modern-day drivers are not terribly interested in driving long-haul anymore,” said Gary Flaherty, vice president of E&S commercial auto at Nationwide Mutual Insurance Co. in Scottsdale, Arizona. “Motor carriers have tried to change their models to more regional, getting drivers home at night. But it’s tough.” 

If current trends hold, U.S. trucking companies could see the shortage of drivers top 160,000 by 2028, according to the “Truck Driver Shortage Analysis 2019” by trade group the American Trucking Associations.

“It’s very hard to get drivers,” said Tony Pagan, safety manager at Lupus Superior LLC, a Grand Prairie, Texas-based trucking company. Some large companies are offering high wages and incentives that make it extremely difficult — particularly for smaller operators — to find and retain drivers, he said. 

Underwriters want to know what qualifications trucking companies require for drivers and “their thresholds for hiring,” said Matthew Payne, senior vice president, and transportation and energy team leader at Lockton Cos. LLC in Kansas City, Missouri. New-hire training, ongoing instruction, monitoring and coaching of drivers are areas that concern insurers, he added.







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