6 Critical COVID-19 Risks to the Transportation Sector

From cyber attacks and supply chain disruptions to new safety concerns, here’s how COVID-19 has affected the already hardening transportation sector.

By: Courtney DuChene | November 3, 2020

Nearly every sector of the economy has been affected by risks brought by the COVID-19 pandemic, and the transportation industry is no exception.

In addition to the obvious risk of virus-spread and safety concerns, COVID-19 has caused supply chain disruptions, cyber security issues and has contributed to already-hardening markets in the sector.

It’s also exacerbated pre-existing problems like the talent shortage and driver safety concerns.

To keep their businesses profitable, those in the sector must be aware of and prepared to address these risks. Here are the critical risks the transportation sector is facing as a result of the COVID-19 pandemic.

1) Hard Market and Rate Increases

Prior to the COVID-19 pandemic, the transportation sector was already facing a hard market. Commercial auto, trucking and other segments in the sector have seen shrinking capacity and rate increases as a result of distracted drivers and ever-riskier roads leading to nuclear verdicts and rising litigation.

These struggles have been with the sector for the better part of a decade, according to Mark Gallagher, vice president of national transportation for Risk Placement Services (RPS), a subsidiary of Arthur J. Gallagher.

“At the end of 2019, the commercial auto industry had a combined loss ratio of 109.4%,” Gallagher said. “So for every dollar they were taking in, they were paying out more than $1.09.”

Even though COVID-19 has reduced the number of vehicles on the road and thereby reduced the loss ratio, commercial auto and other transportation lines remain unprofitable.

Excess carriers, which have shouldered some of the risk in the past, are also being hit with losses and are shrinking their capacity.

“We’ve also got excess carriers that are feeling the pinch and feeling the pain of losses and nuclear verdicts,” Gallagher said, “and they are limiting capacity.”

2) Stay-At-Home Orders and Fear of Transportation

As shelter-in-place orders were issued, transportation companies really diverged into two paths.

First, those in the business of moving products did well; panic buying spurred an increased need to haul consumer goods across the country.

“Freight had a very large uptick during the beginning of the COVID lockdown,” said Chris Demetroulis, the managing director for Gallagher’s transportation practice. “So the transportation companies that were hauling freight, primarily consumer goods and manufacturing goods, were in a really good spot.”

Those in the business of moving people, on the other hand, suffered economically as people began forgoing rideshare and public transportation services out of fear they would contract the virus.

“Whether it’s chauffeured limo companies or rideshare, those businesses are really struggling,” Demetroulis said.

Even though many stay-at-home orders have lifted, people still aren’t comfortable getting in Ubers, Lyfts or other rideshare vehicles.

This summer, Uber’s ridership declined 75% when compared to 2019, and Lyft reported that it had only 8.7 million active riders in the three months leading up to June 2020, down from 21.8 million from the previous year.

3) Supply Chain Disruptions

Trucking companies may have fared well at the beginning of panic buying, but disruptions in supply chains made some of those gains uneven as some factories were forced to shut down due to COVID-19 outbreaks.

“You had a tremendous surge, and as fast as the surge occurred, you had just an immediate drop off within about a 3 to 4 week period,” said Craig Dancer, U.S. transportation practice leader at Marsh. “So what ended up happening is that you didn’t have a supply chain.”

And without a supply chain, truckers have nothing to haul.

“Reliance on single or limited source supply chains has really exacerbated business continuity concerns,” Demetroulis said. “We’ve been counseling clients and prospects to consider various strategies like business continuity planning around how to make sure their supply chain is more diversified.”

COVID outbreaks accounted for some of the disruptions to the supply chain, but most, if not all of these shortages could have been prevented with good risk management practices.

Creating redundancies within a supply chain and working with multiple suppliers can keep trucking companies running, even if one of their clients has to shut down.

4) Cyber Security Breaches

Stay-at-home orders sent many companies to remote-work including those in transportation.

While industries like trucking require that some employees go out on the road, those who held office jobs in the sector have pivoted to remote work, oftentimes with little preparation and a lack of proper IT infrastructure.

“Companies that have not invested in technology, as a second point, have found that the transition to stay-at-home orders is very difficult,” Demetroulis said.

A lack of preparation for an all-digital environment has made transportation companies prime targets for cyber criminals. “The incidents of cyber attacks went up dramatically,” Dancer said.

Exacerbating the cyber security issues that were already present in many transportation companies is the fact that hackers have been using anxiety over the COVID-19 pandemic as a way to get into IT systems through phishing scams and ransomware attacks.

5) Safety

As usual, safety concerns remain paramount for the transportation sector. Prioritizing road and driver safety and investing in new technologies like telematics can help those in the commercial auto space stand out to underwriters.

“Focusing on safety will continue to be an opportunity for transportation companies to outshine their competitors,” Gallagher said

During the pandemic, safety has taken on a whole new meaning for those in the transportation sector, however.

In the past, focusing on safety meant making sure that vehicles were equipped with proper safety features or, in the case of trucking companies, making sure that drivers were rested and were operating their vehicles safely.

While these areas remain important, now safety encompasses deep cleaning, sanitation and social distancing guidelines as well to help contain the spread of COVID-19. “The need for sanitization and safety protocols was really a hot topic,” Demetroulis said.

The pressure for transportation companies to adopt additional sanitation measures will likely continue as long as COVID-19 remains a critical risk.

6) Driver Shortage

Deep cleaning and other safety procedures are especially important when it comes to protecting drivers. Truck drivers tend to be older and thus might be more at risk if they contract the virus.

“Your average truck driver is over 50 years old,” Dancer said, “There are always going to be health concerns.”

For the trucking segment of the transportation sector, the talent shortage has been a risk for years now. But with COVID-19 causing some older drivers to exit the sector for fear of getting ill, it could become even worse.

“Many people are saying that, you know, it’s even going to be worse as we enter 2021,” Dancer said. “They really have to focus on how to get drivers.”

Dancer recommends that companies focus on keeping their drivers protected and that they emphasize the role that they play in keeping the economy churning in order to attract new, younger drivers.

“They’re the people that are heroes. And they’re trying to keep us as an economy going and trying to rebuild our economy,” Dancer said. &

Courtney DuChene is a freelance journalist based in Philadelphia. She can be reached at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.