It’s been a rough ride, full of twists, turns and a few roadblocks for truckers and their insurance specialists.
Truckers today face a number of obstacles that have raised the cost of doing business, including tough federal oversight, driver shortages, high turnover rates, driver misclassification, a sluggish economy, increased competition, severe losses and rising overhead costs.
Insurance brokers specializing in this sector say these challenges add up to a complicated insurance market.
The unique risks of trucking firms make this specialty segment one of the P/C market’s most difficult to manage and it’s becoming more challenging every year, according to Steven Bojan, vice president of transportation risk services for HUB International in Chicago.
Yet the U.S. trucking industry means big business with big opportunities with more than 3.5 million truckers on America’s roadways, hauling 70 percent of all freight transport in the U.S. – roughly 10.5 billion tons – and generating some $726.4 billion in revenue for 2015, according to the American Trucking Association (ATA).
The trucking insurance sector is a competitive market despite what specialists call a “hardening class” – at least for the best risks.
“There are trucking clients that we write where carriers fight over because they are such good risks,” said Bojan. “And then there are others that are seeing significant rate increases because of their previous losses or their overall risk profile is not very good.”
Bojan and others agree that capacity exists in most P/C lines for trucking even though a few carriers have exited some trucking business or greatly reduced their appetite for the class.
“Our markets are having a tough time deciding how much to put on their books, where it should be priced and what type of truckers they are looking for,” said Matt Domitrovich, senior vice president, transportation team leader, Worldwide Facilities LLC.
Insurance specialists cite changing market conditions in recent years that have put pressure on trucking insurance portfolios.
One of the biggest issues facing the trucking sector today is the lack of quality drivers. “The pool of qualified drivers is diminishing each year,” Bojan said. “It’s an aging workforce.” The average age of today’s truck driver is 49 years old, according to ATA, versus an average age of 42 years old for U.S. workers in general. The ATA estimates that the driver shortage ranges from 35,000 to 40,000 drivers nationwide.
Shortage of Drivers
The trucker lifestyle does not appeal to everyone. Job seekers often forgo a career in trucking because of the difficulty of the job: drivers must be away from home, living on the road, sometimes for weeks.
That lifestyle could help explain the high rate of driver turnover. The annualized turnover rate for large truckload fleets stood at 102 percent, while the rate for small truckloads stood at 89 percent in the fourth quarter of 2015, the ATA reported.
The industry faces a constant need to attract and retain drivers, which is a concern not only for trucking firms but also for their insurers.
“Anytime you have a new driver – regardless if they have driving experience – there are greater risks,” Bojan said. Those risks include learning the rules and ways of a new trucking company, learning new driving routes, learning the differences in the trucks. “In that initial six-month period there’s a greater risk of a crash, so for insurance carriers, a key safety metric is driver turnover rates.”
Brenda Watson, president of TIP National based in Oklahoma City, Okla., a managing general agency/program manager and a division of the Capacity Group, says driver turnover has been a challenge for years. “Drivers will move for two cents a mile more if they think it’s better somewhere else.”
Recruiting younger drivers is difficult, too, according to Watson. Federal regulations restrict hiring drivers under the age of 21 years old. “We endorse wholeheartedly that requirement with some experience, but as young people come out of high school and find out they can’t drive, they move on to college or whatever. Then we lose them.”
As the economy improved, the trucking sector faced increased competition from other industries such construction and energy.
“They are all competing for that same pool of drivers,” Bojan said. “Over the last 20 years you find fewer drivers willing to go over the road. Most energy and construction jobs drivers are home at night and most people prefer that.”
Employment practices liability has become a growing area of concern for trucking risks.
“There have been a number of class action lawsuits involving trucking companies and the truckers have lost,” Bojan said. Lawsuits have centered on the Fair Credit Reporting Act and employee misclassification.
Insurance brokers for truckers must make their insureds aware of these liability issues. They need to be business consultants as well as insurance placement people, Bojan said. “They need to know which coverages and at what levels a trucker needs and they need to give them additional advice on industry best practices.”
HUB has focused particular attention on employee misclassification. “We are talking to our folks to make sure that if we have clients who are owner operators with independent contractors that they are treating them in a way that they can sustain the model,” Bojan said. “Because if a company is found to have misclassification issues it opens up not only pay issues but also a work comp audit, which can be devastating.”
Trucking firms say their customers are demanding more from them while government is imposing new regulatory requirements, both of which are adding to the cost of operations.
Bojan said that rates for transportation services do not always keep up with the increasing demands and risks, just as insurance rates sometimes fall short.
“If you were to look at driver wages, they are not increasing. They are increasing lately but not (proportionate) to the demands of their job so it’s hard to attract new people to the industry,” Bojan added.
Trucking is one of the most highly regulated industries in the U.S. “The government regulates drivers probably more closely than almost any other industry,” Bojan said.
That’s because safety is paramount when it comes to big trucks on U.S. highways.
“It’s a class that unfortunately will always have losses and when they do there’s a higher probability that the losses will be more severe than other lines of P/C business,” said Worldwide Facilities’ Domitrovich. Some trucks run in excess of 50,000 pounds. “A vehicle that size will cause severe damage if it hits somebody or something.”
Heavy and tractor-trailer truck drivers have the highest number of nonfatal injuries and illnesses that require days off from work across all occupations, according to Bureau of Labor Statistics data. One out of every six American workers killed on the job is a tractor-trailer truck driver. In 2014 alone, 761 tractor-trailer truck drivers were killed while working, which also marks the fifth year in a row that the number of truck driver fatalities has increased.
Truckers and their insurers must cope with the high cost of their equipment.
“The cost of a truck has gone up greatly with all the additional regulatory emissions requirements in place and safety equipment requirements,” Bojan said. Today a tractor can run $140,000 and a trailer is $30,000 and up. “The capital alone could push small trucking companies out of business.”
“It’s one of the most difficult lines to write and make an underwriting profit so you really have to understand it and know it well,” said TIP National’s Watson.
The insurance market has reacted to the obstacles facing the trucking sector.
“The capacity is adequate, however we do have people leaving the industry,” Watson said.
While the property/casualty industry has reported three consecutive years of significant underwriting profits, the commercial auto market as a whole, of which trucking is a part, reported an underwriting loss for the fifth consecutive year in 2015.
Watson says that while the overall commercial auto market received attention for “being a very unprofitable line of business” most stories didn’t dig deep enough to show that there were still some specialists writing profitable business – even in trucking.
“We believed they (markets) became frightened about the potential long term” outcomes in commercial auto, she said. “There was a lot of innocent capacity writing this business and treating it like a contractor program but there’s so many additional exposures in this class.”
Despite a sluggish economy, Watson says some truck lines have managed to grow, especially the better managed firms. “But even those sometimes fail to hit projections,” she said. “If they projected they were going to do 100,000,000 miles but end up with may be 80 to 90 percent of that they were fortunate.” She says it’s been “a mixed bag” this year but the better managed ones are doing well.
The mixed-bag has changed some carriers’ risk appetite.
“Lexington, for example, an AIG company, was the largest writer of excess insurance over the first $1 million. They were the largest writer for many, many years and they completely stopped writing it,” according to Watson. On the primary liability side, AIG has been re-underwriting their book; how they select risk and price risk. In general, “prices are going up,” Watson said.
Zurich is another market that has changed its appetite in the trucking sector, said Courtney M. Wilson, president of First Guard Insurance Co./1st Guard Corp., a direct writer for truck insurance for leased owner and operators.
“In commercial auto there have been other markets that have experienced poor underwriting profits due to providing competitive pricing, which is always good, but you can price yourself right out of the market at the end of the day,” Wilson said. “Higher volume of claims, a lot more severity, more frequency, and the cost of fixing trucks today for physical damage has increased – all of that plays into the underwriting profitability. Whether big trucks or small trucks – there are only a few markets that have posted profits.”
Today’s environment makes writing trucking firms a challenge for agents, Watson said.
Most of the time when the market hardens and prices go up, the insured will likely never see those lower pricing levels again, she said. “For the agent trying to find a market – that can be difficult.”
Trucking is always going to be a high pressure market, Wilson added. “It’s an ever-changing industry that is very important to the movement of America.”
How Carriers Can Help
HUB’s Bojan says trucking is a specialty market and carriers should be more selective when it comes to broker appointments.
“We end up competing with some other brokers that don’t know the industry well, especially in areas like comp, cargo or physical damage,” Bojan said. That ends up hurting profitability of the line. “A key part of our job is not just placing coverage; it’s servicing the client when something bad happens. If you are not experienced or well-versed you can often do a disservice to your client.”
Another area where carriers can help agents is by clearly stating their risk appetite. “Some carriers get in and out of the market.” That can be burdensome for an agent and a trucking firm. “Carrier apps can be incredibly long and time consuming. Let agents know (the risk appetite) so we place coverage with the right carrier.”
Bojan would also like to see his carriers be more of a safety partner rather than just a safety inspector. “Make sure that risk consultants go beyond ‘Hector the Inspector’ and really become safety partners. I spend a lot of time on the broker side mending fences.”
He also hopes that carriers will spend the time investigating safety practices of his trucking clientele. Online safety data analysis tools do not always provide the complete story about a company, Bojan said. It’s important that carriers “dig a little deeper” when evaluating a trucking firm’s safety practices.
Like his clients, Bojan says, agents must sell more than their service and products. “Trucking firms don’t just sell transportation; they sell peace of mind.” The same is true for a good insurance broker, he said. “We are not just selling insurance.”