Moving forward with specialty trucking
Challenges create opportunities for agents as economy recovers
By Dave Willis
Some segments of the specialty trucking market are experiencing significant growth. "What many refer to as America's dawning energy boom has had a positive impact on a number of our clients, whose super-load capabilities and heavy haul equipment serve as natural transportation solutions for the energy sector," explains Brent Moody, assistant vice president-underwriting for NBIS.
The downside of growth—in energy and in other sectors—is a driver shortage, which continues to affect carriers large and small. "Carrier Safety Act (CSA) ratings place a high priority on keeping the best drivers," explains Deane Sager, director of marketing for Northland Insurance. "Carriers are challenged to attract, hire and retain the best possible drivers. Driver-friendly policies, increased pay and benefits are all tools being used by motor carriers to retain drivers."
Craig O'Connell, CPCU, vice president-transportation at Lexington Insurance Company, is seeing the same trend. "Tank haulers, in particular, are being somewhat challenged with issues around rapid growth, thanks to the boom in fracking and the energy sector in Texas and the Dakotas," he explains. "They're suffering growing pains with driver shortages and under-qualified drivers."
According to Doug Setters, CPCU, president of Creative Underwriters Corp., "The trucking industry is slowly but surely adjusting to the CSA safety management system. The industry still struggles to find and keep good qualified, safe drivers." In addition, he says, truckers sometimes have issues with hours-of-service rules and regulations.
Rapid growth in the segment leads to other challenges. "Some of these operators may not be screening new applicants," O'Connell says, "or they may be losing track of data—for instance, CSA scores."
Andrea Dickinson, senior vice president of AmWINS Brokerage of Illinois, says trucking firms must constantly monitor CSA to make sure scores are within the acceptable national averages. "A negative score can have an adverse effect on obtaining insurance," she says. "Or it can certainly affect insurance rates."
The specialty trucking business is facing other issues as well. "For example, hours-of-service rules will change on July 1, 2013," says Sager. "This could potentially require extensive training for drivers to comply with those new rules."
Equipment costs continue to rise. "This has forced some truckers to trade in two trucks to purchase one new one," Sager notes. "More motor carriers are rebuilding older trucks from the ground up, buying what's called a 'glider kit'—basically, a new truck body—to put on the rebuilt truck. This tends to be more economical."
The cost of diesel fuel continues to be a major issue. "As diesel fuel prices continue to hover around $4 per gallon, carriers are focused on technologies that help them manage their fuel more efficiently," Sager comments.
O'Connell adds: "Putting energy-efficient trucks on the road is a big challenge, because that's being mandated by government. The use of on-board recording devices also is being pushed by the government." In addition, he says, the owners of specialty trucking firms don't know what will happen with legislative changes, fuel taxes, and road maintenance and improvements.
Claims severity is another concern. "A decrease that we've seen in frequency, due to safety and technology enhancements, is not being followed by a severity decrease," O'Connell notes. "Severity is on a real uptick." He cites a more sophisticated and aggressive plaintiffs' bar, which sometimes uses public CSA data in its actions against firms and drivers. This data also is being used by shippers to evaluate trucking firms.
"The industry is operating on tight margins," O'Connell adds. "There are a lot of pressures on an industry that has little top-line fluff to pay for them. They're trying to balance the need to make a profit with taking advantage of technology and safety enhancements." He expects to see mergers and acquisitions increase as these struggles continue.
Not all trends and issues present challenges. "We're seeing a continued uptick in both the residential and commercial construction arenas," Moody observes. "These are key indicators for our specialized transportation clients."
A tighter market
According to Dickinson: "The truck insurance market is tightening, and that will likely continue." Adds Setters: "The tail end of the soft market tended to make consistently unprofitable classifications vivid, so we'll see what I call 'surgical underwriting adjustments' as we move along this year."
Setters expects "an upward drift in transportation insurance pricing, along with some appetite changes and perhaps some tightening of underwriting requirements here and there. There will be some turmoil. But relax; it's a good thing."
Stacy Brown, president and managing partner of Freberg Environmental Insurance (FEI), has seen carriers change their appetite recently in the hazardous materials hauling segment. "This has resulted in some tightening and modest rate increases," he remarks, "but large fleets—those with over 100 units—still are very competitive. Higher rates, tightened driver guidelines and less competition will be more the norm for the remainder of 2013."
Dickinson says tightening is due in large part to several key carriers in primary auto liability exiting the class entirely. "With fewer carriers, we're seeing liability rates increase between 5 and 15 percent, sometimes more, depending on loss experience, CSA scores and other factors," she says. "I expect that to continue for the next few years."
Moody says many insurers that wrote commercial auto associated with the energy boom in Texas have pulled out for a number of reasons—largely inadequate rates. "There are numerous opportunities, but the market is dictating that these come at higher premiums," he comments.
"Many carriers are still trying to gauge exactly how they'll approach these opportunities," he adds. "They're cautious in the wake of lessons learned in Texas, as well as storms like Sandy and Isaac, that have impacted the macro insurance climate."
O'Connell is seeing fewer market entrants. "The number of carriers exiting the market is probably outpacing by two to one the number of insurers writing business with certain attachments and at certain limits," he says. "They're leaving mainly due to profitability."
"The recent $5,000/$10,000 split workers compensation mod calculation has a negative impact on mods greater than 1.0," says Moody. "Also, transportation firms continue to face challenges associated with the Federal Motor Carrier Safety Act's data and scoring requirements. Much of our current risk management efforts are aimed at educating and assisting clients in these areas."
Dickinson says truck brokerage operations pose a distinct challenge. "Truck brokers have unique exposures that require the right coverages," she notes. "Very few markets will offer coverage for brokerages because of loss-related judgments."
Still, she says, there are a lot of requests. "Truckers are pursuing brokerage opportunities and contracts because this can be extremely lucrative," she explains. "They need to be educated about the legal and financial liabilities they face."
Adds Setters: "The transportation insurance industry needs to work with clients to make sure they make the best possible use of available loss control resources."
Agents and brokers can find success in specialty trucking. "Specialized transportation serving the energy sector presents the greatest opportunity right now," says Moody. "We're seeing significant migration of equipment and manpower to West Texas, Pennsylvania and North Dakota, to name a few. Specialized transport is imperative for everything from drilling rigs to heavy machinery to the construction equipment being used at these sites."
O'Connell concurs. "The energy sector is growing by leaps and bounds, far outpacing the economy," he comments. "It almost can't handle the growth. Agents and brokers would do well to look at smaller to mid-sized operations, and add value by helping them maintain CSA data and selling themselves to shipping companies."
"As the oil and gas industry continues to expand, companies that support drilling are rapidly moving in to service drilling companies," adds Cynthia Piersch, underwriting specialist at FEI. "Trucking firms that haul salt water, crude oil, produced water and drilling muds are expanding to meet the needs of active drilling sites, and they're subsequently supporting completed and existing wellheads."
Piersch says many trucking firms go on "milk runs," emptying storage tanks at wellheads and delivering the wastewater to disposal facilities. "This is really a booming area of the market segment right now," she remarks.
According to Setters, energy industry trucking growth will become more significant as the nation continues to develop domestic energy sources over the next few years. "Learning to underwrite trucking for environmental risk circumstances is vital," he asserts. "This benefits the environment, and it also supports national security and could speed a return to national financial prosperity."
The sector should become even more appealing as road improvements occur. "In energy industry trucking, typical underwriting challenges are exacerbated by infrastructure, as well as environmental elements," Setters says. "To stay upright, 18-wheelers need good rolling surfaces all along the route. When roads to and from oil or natural gas fields or coal mine sites are built to accommodate and designated for heavy trucks, energy industry trucking risks should become more attractive."
Sager points to other opportunities for agents and brokers. "Intermodal transportation is increasing, primarily due to limited capacity in the trucking industry," he says. "Shippers are looking to shift some freight to intermodal, which typically combines rail for the long haul and truck for pick-up and delivery of the load."
Making it work
Dickinson encourages agents who are interested in pursuing specialty trucking to focus on a particular segment. "Become an expert in that field," she advises. "Your customers need the peace of mind that comes with knowing that you, as a specialist, have an unparalleled understanding of the coverage you are handling.
"Educating yourself on new and emerging exposures, such as truck brokerage, can help set you apart from the competition," she adds. "Make yourself a student of the issues your client can face, and you'll be an invaluable resource."
Brown says businesses related to oil and gas production are good targets. "The geographic distribution of oil and gas production is expanding," he notes. "While fracking is a controversial issue, particularly in the eastern U.S., wells are still being drilled and they need to be serviced."
According to Diana Pantle, program manager of FEI's Hazardous Materials Hauling Program: "Gasoline, milk—yes, milk is considered a hazardous material—medical waste pick-up services, soil remediation contractors and hazardous waste haulers all are good, solid market opportunities that exist in many communities across the U.S.
"Many standard auto markets won't consider these operations, due to potential pollution exposures," she adds. "Dealing with a specialty market that understands exposures associated with hazardous waste hauling is essential."
Nicole Lawrence, regional vice president of Northland Insurance, points out that trucking insurance is still a relationship business. "Agents and brokers need to be visible, accessible and knowledgeable in order to meet the unique needs of their trucking customers," she says.
"Superior customer service by the agent or broker remains critical to allow for trucking operations to meet shipper requests," Lawrence adds. "It helps them keep their operations running smoothly so they can seize every available opportunity for business."
O'Connell concurs. "I was talking with a broker recently who said that selling insurance is the end game," he says. "The relationship he builds ahead of time is paramount to making that happen. He doesn't sell a particular coverage or price; he sells a service—focusing on the insurance company's claims and loss control performance, and selling his own knowledge and ability to sort through the trucking company's data as an underwriter would. A successful trucking broker helps the insured improve its operation and then sells the risk to the underwriter. In that scenario, everyone wins."
According to Setters, agents and brokers need to prepare clients for a changed pricing environment. "The past insurance market cycle taught insureds to expect rate reductions every year at renewal," he says. "With pricing starting to drift upward, agents should get in front of the issue and address it with their trucking insurance clients long before renewal.
"Offset the unpleasantness of general rising prices by selling value," Setters adds. "Sell up. Encourage clients to add some coverage armor. And always be sure to sell 'you.'"
Dave Willis is a New Hampshire-based insurance and technology writer and a regular contributor to Rough Notes.