March 21, 2016 3:45 AM, EDT

High-Profile Accidents Prompt Insurers to Cut Truck Coverage

This story appears in the March 21 print edition of Transport Topics.

Costly, high-profile accident losses are transforming the trucking insurance market, potentially raising costs and tightening pressure on fleets to improve safety and reduce risk, industry experts said.

Last week, Zurich Global Corporate confirmed to Transport Topics that it has pulled out of the trucking market due to poor profitability, and New York City-based American International Group Inc., another major trucking insurer, has taken the same step, several sources said, though AIG didn’t answer TT’s requests seeking confirmation.

The pullbacks in coverage come amid accidents such as the 2014 Wal-Mart truck crash in New Jersey involving comedian Tracy Morgan and a California accident involving a truck and a bus in which 10 people died. In New Jersey, the family of a Morgan associate who was killed in the wreck received a $10 million settlement. Wal-Mart hasn’t said how much it has paid to settle Morgan’s case. Individual suits for the California familieshave sought as much as $100 million.

“We have seen too many larger awards that lacked economic sense, but they happened,” said Ron Chipman, vice president of risk management for Lakeland, Florida-based Watkins Associated Industries Inc., which offers truckload services. “Availability is out there. I would imagine more scrutiny is going to be given to safety, driver qualifications and such by a prospective new provider. Based on frequency/severity of historical losses, it might be an issue for smaller motor carriers to get a cost-effective renewal.”

Brandon Fick, head of domestic casualty for Zurich North America, told TT that trucking coverage was dropped because “profitability of this portfolio was below acceptable levels.”

“The insurance market is tightening up” because of accident award costs and insurer pullbacks, Stifel, Nicolaus & Co. analyst John Larkin told TT. “The insurance industry has become more and more particular, looking more closely at actual experience and specifics such as drug tests. If a carrier isn’t safe, he won’t be able to secure insurance. [Insurers] are saying, for us to write insurance, we have to make sure it is a safe company.”

While Larkin said insurers are paying three or four times more now to resolve similar cases than they did a few years ago, others’ assessments of market conditions varied.

Bill Smyth, vice president of casualty for Berkshire Hathaway Specialty Insurance, said the apparent exit by AIG and Zurich “caused a huge hole in the industry. It is not an easy time for [trucking]. A lot of insurance programs are changing as a result.”

Fleets now may need two to three insurers — instead of a single provider — to buy $10 million or more in coverage. At the same time, he said, prices are rising as Berkshire Hathaway and others step in.

In some cases, he said, premiums can double, though he emphasized rate changes aren’t uniform because rates are based on carrier size and loss experiences.

Insurance accounts for 4% of fleet costs, the American Transportation Research Institute reported, so steep increases can squeeze fleets with narrow profit margins.

“There has been a lot of talk about [the pullouts], but there hasn’t been much impact yet,” said Tom Dickmeyer, CEO at Three Points Insurance Group. “Every time someone steps down, someone else steps up.”

He told TT that fleets, particularly larger carriers, that are good risks still can obtain coverage with a “minimal” increase at most.

Likewise, Sam Rizzitelli, transportation product lead for insurer Allianz’s Global Corporate and Specialty unit, told TT that coverage is still available in the excess liability area, saying “there is no reason to panic.” He declined to discuss rates.

BB&T Capital Markets analyst Thom Albrecht said a private carrier found excess liability rates rose at least 25% to 30% after the pullouts.

Dickmeyer stressed that insurance cases can take five to seven years to resolve. Long-running cases raise caution flags for insurers, carriers and brokers and force tighter underwriting standards, he said.

“Effective risk-management practices usually translate into the best possible premiums” for carriers, Rizzitelli said. “The transportation industry is complex. The insurance industry is complex. The insurance industry understands the risk in transportation and develops coverage suited to that risk.”

“The ATA state associations are key to help the trucking industry in focusing on key areas of concern and educating those key congressional members,” said Chipman, who heads American Trucking Associations’ insurance task force. “All companies in this industry need to be more proactive in working with state associations to work on key reform measures.”

Chipman said media hype and lawyers’ advertisements too often paint truckers as the “bad guy,” though that clearly is an untrue picture.

“It is great to see trucks with advanced technology and telematics that can assist our drivers,” he said. “Most companies can spend money, time and effort working on improved equipment, training drivers and just doing what we are supposed to do to protect the general public. All of the above is necessary for some key, focused improvement to reduce, stem, avert costs of judicial awards.”

He explained that his company researches the best coverage, carefully weighing costs of retaining risk and transferring it to insurers.