By Mike Natalizio
After almost eleven years of sliding insurance prices, a market correction that began in late 1999 has continued and accelerated throughout the past year. It has resulted in a hard market for insurance.
In the insurance industry, we describe the market as hard when prices are rising, coverage availability shrinks and renewal conditions become more restrictive. Unfortunately, the trucking industry is traditionally one of the first to feel this pressure because it’s a high severity class of business.
Today, only a handful of companies are willing to participate in the writing of truck insurance. A more alarming situation is the excess layers of insurance. It appears that there are fewer than 10 insurance carriers willing to write excess limits over $1 million primary liability limit.
Recognizing the changes taking place, here are seven steps trucking companies can implement to survive in the hard market:
Step 1: Take action now. Look for ways to implement cost-saving strategies now rather than waiting for your insurance renewal. The best way to ensure you’re not blindsided and left with unattractive options is to be prepared. Educate yourself about the hard market and identify who the players are in your industry. Learn which brokers specialize in working with trucking companies.
Step 2: Strengthen safety programs. Safety is always important. In a hard market, it’s critical. Even if you feel you have a solid program, strengthen it. If you don’t have one, start one. Ask yourself, “Are we going through the motions, or are we really doing it?” A strong safety culture starts at the top, and constant communication will help build the long-term culture you need to survive. Identify your Top 10 Safety Critical Success Factors. Measure your results and share them throughout the organization, from management to drivers.
Step 3: Consider taking more risk. Consider options such as increasing your deductibles or self-insuring parts of your business. By retaining more risk, you can keep costs in check. Since your premium will go down, a larger part of your “total cost of risk” will be your claims. By reducing your claims, you will in effect reduce your total cost of risk and improve your cash flow.
As insurance underwriters review and price your account, they are more confident writing a motor carrier who has “skin in the game.” If you are unwilling to underwrite yourself, they most likely will not be as aggressive when pricing your account.
Step 4: Analyze your critical risk factors. In a hard market, underwriting standards are scrutinized more carefully. Be aware of your critical risk factors and improve areas that are deficient. In today’s world, your Safer and SafeStat scores are public information. Underwriters often use them as their first screening tool. If your scores are below average or certain risk factors become apparent, you may be unable to secure a favorable quote.
Step 5: Consider insurance program adjustments. Review all components of your insurance. Make sure coverages and limits are appropriate. In a softer market, coverages and limits are “thrown in” at little or no charge. Today, you’ll most likely be charged for the coverages and limits.
With fewer carriers participating in the higher layers, umbrella premiums are increasing on average 100% to 300%. Many trucking companies have been forced to reduce, and in some cases eliminate, these coverages. This is a risky proposition for companies that have assets to protect. For carriers that are financially capable, options to accept a corridor of risk or quota share of this layer are becoming more popular. Making changes to liability limits must be done only after careful review with your trusted advisors.
Step 6: Strengthen relationships. The best way to successfully weather a hard insurance market, or any market for that matter, is to have a committed relationship with your insurance partners. Make sure you are aware of the resources available from your insurance partners.
ontact your safety representatives and inform them of what you’re doing. Focus on building a personal relationship with the representatives who touch your account (underwriting, safety, claims). Switching insurance companies every other year will reduce the likelihood of a favorable quote and make it more difficult to find a “partner.”
Step 7: View risk as an opportunity. Fear of taking risk can paralyze a company. Create a process to identify areas of risk facing your company and deal with those risks on a strategic level. You can no longer expose your company to areas of unidentified and unforeseen risk. By dealing with these risks, you will find hidden opportunities that will allow you to become more profitable, grow your business and reach your goals. Create a strategic plan that integrates risk management and business planning.
Your company can take steps now to begin evaluating options and planning for the future. By strategically addressing the hard market of today, your business can remain strong for tomorrow. Once you make the decision to move forward, you may not know where to start. Moving from decision to implementation may require the assistance of a professional advisor who will help you through the process.
The writer is president of HNI Co., a broker in Milwaukee, Wis., that provides insurance, risk management and loss control services for the motor carrier industry.
This story appeared in the Jan. 14 print edition of Transport Topics. Subscribe today.
