Coverage Challenges for Transportation
A spike in blockbuster payouts over the last five years has prompted some of the largest commercial fleet auto insurers to exit the market.
With cell phone use and sleep deprivation on the increase, it’s no surprise that the number of fatalities involving large trucks has climbed by 7.5 percent between 2010 and 2015, according to the U.S. Transportation Department.
In some cases, this has resulted in juries awarding tens or even hundreds of millions of dollars to the families of victims.
Among the most high profile incidents was the Wal-Mart truck that plowed into comedian Tracy Morgan’s limo in New Jersey in 2014, causing a six-vehicle pile-up, killing one person and injuring several others.
Aon has cited at least six cases topping $20 million this year, the most in four years.
Added to that, the industry’s adverse loss reserve development increased by almost $1 billion, from $647 million in 2013 to $1.6 billion in 2015.
Rates, meanwhile, have risen by as much as 30 percent and are expected to climb further next year.
David Perez, executive vice president, national insurance at Liberty Mutual, said that while insurers increased premiums over the last three to four years, their results had continued to deteriorate.
“It’s at a point where insurers can’t get the rate they need to be competitive, so there’s little other option than to cut back,” he said.
As a result, many of the biggest underwriters, including AIG and Zurich, have pulled some of their for-hire fleets coverage.
However, they will still cover trucks directly operated by retailers and manufacturers.
AIG subsidiary Lexington Insurance Co. stopped covering trucking fleets as part of its wider strategy to improve its commercial insurance division profitability; however, other units will continue to provide cover, according to a company statement.
“With all of these big insurers pulling out, it’s going to create a big problem,” said Daniel Bancroft, transportation practice leader, North America, at Willis Towers Watson.
“Whereas three years ago fuel was their major expense, now insurance is their third largest expense behind drivers’ salaries and equipment costs.”
Mark Brockinton, CEO of Aon’s transportation and logistics practice, said that the main reason behind the increase in accidents was the sheer volume of vehicles on the road.
Brockinton said that verdicts and settlements have been trending upwards over the last five years as plaintiffs’ lawyers have targeted employer negligence and hiring, training and safety practices in the trucking industry.
“They have become adept at finding issues such as logging, added to which have been the highly publicized claims such as Tracy Morgan’s, creating new fodder for plaintiff lawyers,” he said.
The cost of coverage, meanwhile, is putting extra pressure on trucking companies, with rates up 15 percent to 20 percent on average, and in some cases by 30 percent, squeezing out the smaller operators.
Federal law requires firms to cover drivers up to $750,000 per accident. Many self-insure up to around $1 million and buy further tiers of insurance to cover additional costs.
Joseph Peiser, executive vice president and head of casualty broking at Willis Towers Watson, said that attachment points for umbrella insurance also increased over the last year, sometimes as high as $15 million.
“Increasingly we are seeing situations where family-owned companies are having to pay claims in excess of the umbrella limits purchased, which is hard to swallow if your margins are only 2 to 5 percent,” he said.
This has resulted in some companies cutting corners on safety in order to save costs.
Steven Gursten, a Michigan attorney specializing in severe trucking accidents, went as far as to say that there had been a “systemic, company-wide disregard of mandatory safety rules” by some firms.
“Too many companies are in a dangerous race to the bottom,” he said.
“Today, we have many unsafe trucking companies that deliberately ignore mandatory safety rules and that, as a result, can undercut good, safe trucking companies on price.”
From December next year, however, most trucks will be required by federal law to carry electronic monitoring devices to ensure truckers don’t exceed limits on time spent behind the wheel.
Jenn Guerrini, vice president and executive commercial auto specialist, North America risk engineering services at Chubb, said that collaborative effort is needed between truck manufacturers, regulators and the trucking industry to reduce the number of accidents.
“Road trucking companies need to implement stringent fleet safety programs, reinforce driver training, monitor driving behaviors, educate employees and enforce company policies uniformly throughout the organization,” she said.
Chubb’s 5 Step Guide to Improve Driver Safety
- Reinforce driver training and increase the use of telematics to monitor driving behaviors.
- Buy new vehicles with advanced driver assistance systems fitted as standard.
- Implement a fatigue driving policy and establish a wellness program for drivers.
- Install dash-mounted technologies that can help identify fatigued drivers.
- Install electronic logging devices to monitor drivers’ hours of service.