Specialty Lines Markets
Transportation in transition
Specialists help truckers deal with cost pressures, regulation and legal trends
By Dave Willis
A number of economic and regulatory factors will affect the general commercial trucking and trans- portation business in 2013 and beyond. "Rising fuel costs, a severe shortage of quality drivers and full implementation and enforcement of CSA will have an effect on all transportation segments," explains Dave Wittwer, vice president at The Buckner Group, transportation broker and subject matter expert for NBIS. CSA refers to the Compliance Safety Accountability program created by the U.S. Department of Transportation's Federal Motor Carrier Safety Administration to improve commercial truck and bus safety.
As CSA implementation matures, insureds—and their agents and brokers—are making positive changes. "The brokerage community has educated itself on how to assess clients, how to train them, and how to connect them with resources to help monitor and improve their performance," explains Craig O'Connell, CPCU, vice president, Lexington Insurance Company.
The program is already having a beneficial effect on safety. "There are a lot of moving parts within the program, but we are definitely seeing it as a positive," he adds. "Implementation is causing motor carriers to have to really monitor their statistics and their metrics.
"In the long run, I believe this will weed out some substandard drivers and even fleets," O'Connell notes. "It may actually lead to some increased merger and acquisition activity in the industry because some smaller carriers can't keep up with how information technology and monitoring requirements are changing."
CSA data can help insurers better assess risks, underwrite business and help reduce losses. "The data base allows us to look at motor carrier data and determine what activities are causing scores to go south," O'Connell explains. "It could be something as simple as log-book violations or it could be unsafe driving scores. We can use this information to work with insureds to remedy the situation.
Other factors are affecting segments of the transportation arena. "Specific to specialized transport, for example, the expiration of subsidies on wind farms will have a tremendous effect on many specialized transport companies," explains Wittwer. "Many of these firms will have expensive, idle equipment that they will not be able to have in service."
Recent economic challenges have led to what O'Connell describes as an emerging exposure. "Over the last couple of years, motor carriers have gotten increasingly frustrated with the inconsistency in demand and costs associated with fleet, drivers and fuel," he says. This has led some carriers to "lean their efforts to revenue engines that transfer some of those uncertainties."
As a result, trucking firms of all sizes are getting into the brokerage business. "The problem is, many of them are not adequately insured," he says. "They may believe that they aren't taking on any exposure, since they're just connecting two parties. They don't want to find out after an accident occurs that they did have some liability."
One trend that is likely to continue into 2013 involves claims. "Insureds have done a good job in bringing down the frequencies of claims," O'Connell explains. "At the same time, an increase in claims severity is far outweighing a decrease in frequency."
A savvier plaintiff's bar, claims inflation and increased medical costs are driving increased severity, he adds. "They are all weighing into larger claims," he notes. "For instance, the industry saw its first couple of judgments north of $40 million in 2011 and 2012. That's double, if not four-fold, what the industry was used to seeing in a trucking accident." This is leading carriers to reassess their attachments.
Finally, notes Doug Setters, CPCU, president of Creative Underwriters, prices are likely to increase. "There is no longer any room for further general transportation insurance rate deterioration," he explains. "Expect carriers to build, rebuild or perhaps correct their predictive rate plans as they adhere to changing risk dynamics."
Success in 2013
Setters expects that with increased claim severity, an economic rebound and a general insurance market hardening, there will be a different insurance environment going forward. "Selling up and selling value are the new alternatives to the price war we unfortunate transportation agent foot soldiers have waged the past few years," he explains.
How can agents respond to these marketplace changes? "Simply put, it comes down to knowledge, expertise and value," explains Wittwer. "Agents and brokers need to combine their knowledge of insurance and risk management strategies, specific expertise they have or develop in the transportation arena, and the added value they can bring to the client experience."Adds Brent Moody, assistant vice president-underwriting and one of two program managers for specialized transportation at NBIS, "From a broad perspective, agents and brokers need to help deliver true risk management. In particular, they need to help clients proactively manage their CSA scores routinely and provide industry-proven risk management solutions to put into practice with all employees. This will form the foundation of a safe operation, ultimately leading to competitive insurance pricing at renewal.
"Now, more than ever, transportation companies need to remain consistent with their standards and safety procedures to securely deliver cargo," Moody notes. "Safety protocols these companies have in place are reflected in their CSA scores, which demonstrate consistency of sound operating procedures. These procedures and CSA scores are definitely considered at renewal time."
According to Setters, "A great transportation program solution begins with a great risk survey. Information from prior years should be fully re-vetted at every approaching renewal, and perhaps in between if there's been a significant change in risk due to trucking company merger, acquisition or, perhaps, the need to accommodate new shipper requirements."
Setters encourages agents and brokers to discuss the benefits of GPS telematics equipment with trucking insurance clients and prospects. "A lot of the larger trucking companies now use this equipment in fleet management and safety," he explains. "But GPS telematics is not just for the big guys anymore."
It can help trucking firms of all sizes. "It can help improve driving habits, improve driver safety, save on fuel and maintenance, and manage on-time deliveries," Setters adds. "A savvy agent can usually get improved insurance pricing from a carrier for small and medium-sized fleets that use such monitoring gear."
His firm has had good experience with telematics solution provider FleetDaddy. "As we inform our producers about the product, I expect us to get improved insurance pricing from carriers, better retention on renewal, and enhanced safety performance on the road for fleets installing and properly using this equipment," Setters says.
O'Connell encourages agents and brokers to carefully assess their insurance partners. "With all of these moving parts, it's important to look at carrier longevity and consistency when it comes to selecting the right insurer," he says. Insured consistency also is important. "Loyalty goes two ways," he adds. "There's a tendency to want to move from market to market. But when there's a loss—and there will be—it's important to be with someone who will stay with you."
The issue involves more than just loyalty for loyalty's sake. "Transportation firms are paying a lot of money for their insurance, and it's important for them get something for it other than risk transfer," he says. "When something does happen, you want the claims and legal expertise to handle large judgments, which, again, are on the rise."
Setters sees the market's prospects like this: "We may be on the threshold of an economic boom—or perhaps a bust. But something has to give. By nature, transportation is not an innate creature; it's always in motion—moving, expanding, contracting with opportunities.
"The velocity of commerce occurs as much on anticipation as it does on actual engagement," he adds. "As the country encounters the headwinds of national debt and a largely unstable global financial environment, it's a good time to be market worthy and market fit."
Dave Willis is a New Hampshire-based insurance freelance writer and regular Rough Notes magazine contributor.