Drive Underway to Increase Truckers’ Minimum Insurance Limits

By Andrew G. Simpson | June 5, 2014
White Man Delivery Truck

Truckers would be required to buy higher insurance limits under a government proposal, although how much higher is not yet known.

The Federal Motor Carrier Safety Administration (FMCSA) concluded in a report to Congress that current minimum financial responsibility limits for the commercial motor vehicle industry — including the $750,000 limit for general freight carriers— are inadequate to meet the costs of some crashes, mainly because of rising medical costs.

The agency stopped short of recommending specific new limits but could have a proposal by the end of June and new limits could be published in November.

Truckers are split, with some accepting higher limits and others opposing them as unnecessary and a burden on smaller trucking firms.

Insurers aren’t saying anything, yet anyway, while insurance brokers, noting that many truckers already buy more than the minimum limits, agree that current minimum limits are too low.

The FMCSA study found that catastrophic motor carrier crashes resulting in injury, death and/or damages that exceed the current limits are relatively rare — less than one percent of 3330,000 crashes analyzed. However, while catastrophic crashes are rare, the costs for the resulting severe injuries can exceed $1 million and current insurance limits do not adequately cover these costs, according to the report.

Congress required the FMCSA report on comparing the benefits of increasing insurance minimums, including improved compensation for crash victims and reductions in commercial vehicle crashes, with the costs imposed on commercial motor vehicle operators and the insurance industry.

FMCSA regulates all registered commercial motor vehicles that operate interstate or that carry hazardous materials‑ or close to 540,000 motor carriers— and their 5.6 million drivers.

Current minimum financial responsibility levels imposed under federal law are:

  • $750,000 for for-hire interstate general freight carriers
  • $1,000,000 for for-hire private carriers of oil and hazardous materials
  • $5,000,000 for for-hire and private carriers of other hazardous materials
  • $1,500,000 for for-hire passenger carriers of 15 or fewer seats
  • $5,000,000 for for-hire passenger carriers with more than 15 seats
  • $300,000 for for-hire general freight carriers of less than 10,0001 pounds

(The report does not examine the current bond and insurance requirements for freight forwarders and brokers since these requirements were set at $75,000 effective October 1, 2013.)

These limits do not adequately cover catastrophic crashes mainly because of increased medical costs, the report says. From 1985 to 2013, the medical consumer price index (CPI) increased at a higher rate of 4.9 percent annually than the core CPI rate of 2.8 percent. The medical CPI has outpaced overall inflation in all but one of the last 29 years. According to FMCSA, if the current minimum financial responsibility limit for general freight coverage ($750,000) had been adjusted for inflation using the core CPI, it would be $1.7 million; if adjusted for the medical price index, it would be and $3.2 million.

Trucking firms’ insurance premiums have remained stable or declined since the 1980s at about $5,000 per bus or truck, according to the report.

FMCSA said that it does not have data on what insurance premiums for motor carriers would be if the limits are raised because there is no uniform pricing scheme and insurers are protective of their pricing for competitive reasons.

Other organizations have also studied the issue and come to conflicting findings and opinions. They include the Pacific Institute for Research and Evaluation (PIRE), the Alliance for Driver Safety and Security Inc. (or the Trucking Alliance), and the American Trucking Association (ATA).

PIRE concluded that the upper range of liability awards in large truck crashes involving death or catastrophic injury is about $10 million (in 2012 dollars) and recommended a limit per crash of at least that amount, indexed for inflation.

The Trucking Alliance concluded that the $750,000 limit is inadequate for 42 percent of crashes and backed higher limits.

The ATA came down against higher limits. It analyzed ISO data from two large truck insurers and found only 6.5 percent of trucks over 26,0000 pounds have limits under $1 million while 83 percent are at $1 million and the remaining 10.5 percent are written over $1 million.

The ATA study also found that there is only a 1.40 percent chance of a claim exceeding $500,000, a 0.73 percent chance of a claim topping $1 million, and a 0.31 percent chance of a claim going over $2 million.

From 2006 to 2011, the ISO data showed there were 85,632 reported crashes with a total of $961,591,721 in claims incurred, making the average cost per occurrence $11,229.

An association for small truckers, the Owner-Operator Independent Drivers Association (OOIDA), criticized the FMCSA’s call for higher limits, noting that the report acknowledges that 99 percent of commercial vehicle accidents are readily covered under current requirements.

The trade group, which represents about 150,000 small truckers, also said that FMCSA has not assessed the financial impact of increased requirements on small businesses.

“Even though the agency’s report confirms that fewer than one percent of all truck-involved accidents result in injuries or property damage that exceed current insurance requirements, it seems pretty clear they plan to raise those requirements anyway,” said Todd Spencer, OOIDA executive vice president, in a statement.

The Kansas City, Missouri-based OOIDA contends that an increase in insurance requirements would hurt small businesses that it says comprise more than 90 percent of the trucking industry.

“The amount of insurance carried by motor carriers has never been shown to have a correlation with safety,” said Spencer. “The agency seems to be bowing to the economic objectives of the personal injury attorneys and mega-trucking companies who have been campaigning for higher insurance requirements.”

Spencer said trial lawyers see higher limits as a way to obtain “windfall payouts” while large trucking companies see them as an “opportunity to drive up business costs and do away with their small-business competitors.”

Keeping financial responsibility limits the same in 2014 as they were in 1985 is “irresponsible” and should be corrected, according to Mike Stephenson, an Indiana personal injury attorney who represents victims of car and truck accidents.

“We all know how inflation has reduced what we can get with a dollar. And nowhere is this more true than in healthcare, where the cost of hospitalization and medical treatment has skyrocketed in recent decades,” Stephenson said.

The American Association for Justice (AAJ), representing trial lawyers, has recommended gradually upping the $750,000 limit to $4.4 million to account for more than 30 years of inflation, according to Michael J. Leizerman, a truck accident attorney,  managing partner at EJ Leizerman & Associates LLC and member of the trial lawyer group’s motor carrier committee, writing in his firm’s blog.

In a 2013 report, the AAJ argued that the outdated limits disrupt the insurance market. “Insurance companies cannot truly rate carriers based on their safety records because the true impact of unsafe operations – damages from liability – are artificially limited,” the report said.

The AAJ also said the low limits encourage some carriers to choose bankruptcy when faced with damages beyond their limits and then restart operations under a new name. “If insurance requirements were set at appropriate levels, carriers could not operate with bankruptcy as a back-pocket option,” the AAJ said.

Insurance trade associations declined to comment on whether limits should be raised.

But several truck insurance brokers spoke up, endorsing the idea of higher minimum limits.

Brenda B. Watson is president of TIP National in Oklahoma City, a trucking insurance program manager that works with retail agencies to help trucking firms obtain coverage. Watson recommends setting the minimum at $2 million.

“Many truck lines currently carry $2 million to $5 million and the larger truck lines carry even higher limits. We have specialized in this industry for many years,” Watson told Insurance Journal.

She said her firm is never asked to provide $300,000 or $750,000, only  $1 million and higher.

Ben Armistead, a partner with Greenwich Transportation Underwriters in Brentwood, Tenn., would go to a minimum of $3 million.

“They are completely inadequate,” Armistead said of the current limits.

He acknowledged that raising the limits would hurt some truckers, even put some out of business.

As for its effect on his own business, Armistead said it would be a mixed bag. “It would help in higher premiums; it would hurt in truckers going out of business,” he said.

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Latest Comments

  • June 9, 2014 at 4:03 pm
    Libby says:
    Well, expect the cost of goods and services to go up. You know who will be paying for these increased limits!
  • June 9, 2014 at 3:24 pm
    Agent says:
    Dave, in our area, 6 out of 10 accidents reported to us by insureds who were hit by the at fault party involved Uninsured or Underinsured drivers. I had first hand knowledge ... read more
  • June 9, 2014 at 1:58 pm
    Dave says:
    Personal liability limits requirements are a joke and always have been, obviously a political thing. Just because somebody is too poor to afford higher liability limits to pro... read more
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