Captives

Lane Shift for Trucking Risk

A shrinking insurance market drives interest in captive solutions for the transportation industry.
By: | March 3, 2017 • 6 min read

Today there are more vehicles on America’s roads than before, driven by a trucking industry that grew exponentially to meet increased consumer demand.

Add in the advanced average age and subsequent deterioration in truckers’ health, the increased use of cell phones and more highway construction projects, and that resulted in a huge increase in accidents in recent years.

The number of crashes involving large trucks alone climbed by 9 percent between 2011 and 2014, according to the U.S. Transportation Department.

As a result, commercial auto insurance rates spiked, some by as much as 30 percent in 2016, and they are expected to climb further this year.

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Fitch also reported last year that the commercial auto sector is a “chronically underperforming segment” due to overly aggressive pricing and a steep rise in claims severity, prompting many insurers to pull out of the market.

All of these factors, when added to already tight margins and other economic pressures including driver costs, forced many trucking firms and companies with large vehicle fleets to turn to captives to spread their risks and reduce insurance costs.

Captives also provide access to ancillary lines of coverage and limits, return of underwriting profits, improved risk management practices and the ability to manage marketplace fluctuations.

Collateral Squeeze

Geoff Welsher, managing director at Marsh, who runs two offshore captives, said that the increased interest in captives for commercial auto insurance is driven by a combination of some insurers pulling out of the market and others increasing rates.

Of most interest, he said, were group captives specializing in trucking companies, which provide a greater level of investment in claims management and loss control than traditional insurance coverage achieves.

Gary Osborne
President
USA Risk Group

Many of these captives also put a larger percentage of their premium toward staff training and employ full-time risk control specialists, he said.

“In a group captive environment, there are all manner of board and safety meetings and benchmarks against which companies can measure themselves,”
he said.

Rob Kibbe, executive director of Aon Risk Solutions’ transportation practice, said that these kinds of captives appeal most to companies seeking a return on their investment in safety technology.

He added that they also allowed owners to control their own rates and achieve greater risk rewards than with traditional coverage.

Todd Reiser, vice president and producer in Lockton’s transportation practice, said that the choice of captive depended on a range of factors including fleet size, ownership and corporate structure, tax considerations, credit capacity, estate planning and the number of owner-operators within the fleet.

“Single-parent captives allow for tax benefits, estate planning solutions, more efficient use of capital and the ability to write certain coverages in the captive independent of insurance market conditions,” he said.

“Risk retention groups and group captives, on the other hand, allow the members to share in certain risks, purchase reinsurance and potentially

limit the collateral obligations of traditional insurance.”

Chad Kunkel, executive vice president of group captives, North America at Artex, which manages more than 20 group captives or program solutions in the U.S., said that group captives are best suited to transportation companies wanting to lower their risk management costs.

“Good prospects for group captives are financially sound companies with above-average loss experience, good risk management practices and premiums beginning at $250,000 for workers’ compensation, general liability and auto lines of coverage,” he said.

“Group captives also offer another benefit — group purchasing power — which helps lower the overall cost of insurance for each member.”

Gary Osborne, president of USA Risk Group, said that RRGs are the most popular forms of captive because they allow owners to write insurance in all 50 states while only having to form in one.

Self-insurance also helps firms to reduce their collateral requirements and thus free up capital to invest in other parts of the business, he said.

Increased Interest

Such is their popularity, Kibbe said, that Aon almost doubled the number of captive formations in 2016 from the previous year and is continuing to see interest.

Most of the companies entering into captives are either smaller middle market trucking firms joining or forming their own group captives in order to take higher retentions, or large firms looking to reserve properly, said Sean Rider, executive vice president and managing director of consulting and development at Willis Towers Watson.

Vermont is one of the most popular states for setting up a captive, with more than one-quarter of active captives domiciled there writing some form of auto liability.

In total, Vermont houses six registered risk retention groups, two industrial insured group captives and four “pure” captives for trucking firms.

David Provost, deputy commissioner at Vermont’s Captive Insurance Division, said these ranged from auto wholesalers to large trucking companies with their own or several captives, as well as group companies that insure either their members or the association, or those operating as commercial trucking insurance companies for their truckers.

“Some of these larger trucking companies have to post multimillion dollar policies and prove that they have the financial assurance to operate a trucking company, so it’s often beneficial for them to do that with a captive,” he said.

Technological Advances

Safety technology also helps businesses to mitigate these risks by monitoring driver speeds, behavior and work practices.

In recent years, telematics has been one of the most effective ways to improve safety and bring down premiums, typically by 5 percent to 15 percent, according to industry estimates.

While take-up is relatively tepid largely due to budget constraints, with only 30 percent to 40 percent of all commercial and government vehicles fitted with the devices, the fuel, labor and maintenance costs savings can be substantial.

What’s more, from December this year, 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.

“The most significant development in the transportation sector has been cameras and monitoring of vehicles’ activity,” said Daniel Bancroft, transportation practice leader at Willis Towers Watson.

“Studies we have conducted have proven that they can reduce frequency of accidents by up to 50 percent.”

Osborne of USA Risk Group said that this was borne out by the National Independent Truckers Insurance Co., which consistently achieved a below 50 percent loss ratio for the last 10 years as a result of using cameras in all of its vehicles.

“The adoption of technology allied to greater control over the claims process through the use of captives has enabled companies to determine which claims to settle quickly and which ones to contest,” he said.

Aon’s Kibbe said that training has also played a part.

“Clients have been investing heavily in those aspects as well as dealing with driver fatigue, which has helped massively,” he said.

Willis Towers Watson’s Rider added that middle market trucking firms entering a group captive also had access to more sophisticated loss control safety, engineering and behavioral analysis and services than they would necessarily on their own.

Because a captive’s insureds put more resources into loss control and safety, they have had a bigger impact on reducing frequency, leading to better underwriting results, said Lockton’s Reiser.

“Technology plays a large part in safety and loss control for commercial fleets and is becoming more of a factor in the underwriting process,” he said. &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 Teddy Awards

The Era of Engagement

The very best workers’ compensation programs are the ones where workers aren’t just the subject of the program, they’re a part of it.
By: | November 1, 2017 • 5 min read

Employee engagement, employee advocacy, employee participation — these are common threads running through the programs we honor this year in the 2017 Theodore Roosevelt Workers’ Compensation and Disability Management Awards, sponsored by PMA Companies.

A panel of judges — including workers’ comp executives who actively engage their own employees — selected this year’s winners on the basis of performance, sustainability, innovation and teamwork. The winners hail from different industries and regions, but all make people part of the solution to unique challenges.

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Valley Health System is all-too keenly aware of the risk of violence in health care settings, running the gamut from disruptive patients to grieving, overwrought family members to mentally unstable active shooters.

Valley Health employs a proactive and comprehensive plan to respond to violent scenarios, involving its Code Atlas Team — 50 members of the clinical staff and security departments who undergo specialized training. Valley Health drills regularly, including intense annual active shooter drills that involve participation from local law enforcement.

The drills are unnerving for many, but the program is making a difference — the health system cut its workplace violence injuries in half in the course of just one year.

“We’re looking at patient safety and employee safety like never before,” said Barbara Schultz, director of employee health and wellness.

At Rochester Regional Health’s five hospitals and six long-term care facilities, a key loss driver was slips and falls. The system’s mandatory safety shoe program saw only moderate take-up, but the reason wasn’t clear.

Rather than force managers to write up non-compliant employees, senior manager of workers’ compensation and employee safety Monica Manske got proactive, using a survey as well as one-on-one communication to suss out the obstacles. After making changes based on the feedback, shoe compliance shot up from 35 percent to 85 percent, contributing to a 42 percent reduction in lost-time claims and a 46 percent reduction in injuries.

For the shoe program, as well as every RRH safety initiative, Manske’s team takes the same approach: engaging employees to teach and encourage safe behaviors rather than punishing them for lapses.

For some of this year’s Teddy winners, success was born of the company’s willingness to make dramatic program changes.

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Delta Air Lines made two ambitious program changes since 2013. First it adopted an employee advocacy model for its disability and leave of absence programs. After tasting success, the company transitioned all lines including workers’ compensation to an integrated absence management program bundled under a single TPA.

While skeptics assume “employee advocacy” means more claims and higher costs, Delta answers with a reality that’s quite the opposite. A year after the transition, Delta reduced open claims from 3,479 to 1,367, with its total incurred amount decreased by $50.1 million — head and shoulders above its projected goals.

For the Massachusetts Port Authority, change meant ending the era of having a self-administered program and partnering with a TPA. It also meant switching from a guaranteed cost program to a self-insured program for a significant segment of its workforce.

Massport’s results make a great argument for embracing change: The organization saved $21 million over the past six years. Freeing up resources allowed Massport to increase focus on safety as well as medical management and chopped its medical costs per claim in half — even while allowing employees to choose their own health care providers.

Risk & Insurance® congratulates the 2017 Teddy Award winners and holds them in high esteem for their tireless commitment to a safe workforce that’s fully engaged in its own care. &

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More coverage of the 2017 Teddy Award Winners and Honorable Mentions:

Advocacy Takes Off: At Delta Air Lines, putting employees first is the right thing to do, for employees and employer alike.

 

Proactive Approach to Employee SafetyThe Valley Health System shifted its philosophy on workers’ compensation, putting employee and patient safety at the forefront.

 

Getting It Right: Better coordination of workers’ compensation risk management spelled success for the Massachusetts Port Authority.

 

Carrots: Not SticksAt Rochester Regional Health, the workers’ comp and safety team champion employee engagement and positive reinforcement.

 

Fit for Duty: Recognizing parallels between athletes and public safety officials, the city of Denver made tailored fitness training part of its safety plan.

 

Triage, Transparency and TeamworkWhen the City of Surprise, Ariz. got proactive about reining in its claims, it also took steps to get employees engaged in making things better for everyone.

A Lesson in Leadership: Shared responsibility, data analysis and a commitment to employees are the hallmarks of Benco Dental’s workers’ comp program.

 

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]