Opinion: Insurance – No Bargains in Basement

By Rocky Roemer

resident, Wellington F. Roemer Insurance Inc.

With fleet insurance rates on the rise, conventional wisdom might be to aggressively shop your insurance program for the cheapest rate. Such a strategy at this time may well prove disastrous for unlucky trucking firms.

Property and casualty insurance rates historically have been volatile, with extreme rate increases last observed in the hard market of 1985-86. This is attributable to normal market swings and is influenced greatly by the returns insurance companies obtain from the investment markets as well as past underwriting profitability or the lack thereof. The P&C marketplace is currently in a firming phase. A number of significant players in the trucking insurance area are withdrawing from the marketplace or re-underwriting their books of business to increase premiums and reduce underwriting losses. This is exerting upward pressure on rates.

Over the years there have been numerous questionable entrants into the fray who offer seductively low rates unsupportable by prudent underwriting. Such programs serve to drive rates below sustainable levels. Such programs do not last. When they non-renew or become insolvent, fleets scramble for an alternative — often paying dearly.

Rate increases predicted in Transport Topics in December 1999 have proved in many cases to have been conservative. Over the course of the past several months, most fleets’ policies have renewed with rate increases of 5% to 20%. Further increases of this magnitude are widely predicted. There are numerous unfortunate fleet operators who are suffering the “triple whammy” of movement to a new insurance carrier, along with poor accident history and prevailing rate increases. They often have no choice but to accept renewal rates representing a doubling or trebling of annual premiums.

It is likely that these trends will continue. When combined with driver shortages and increasing costs of capital, the result of these increases may be dramatic dislocations within the trucking industry.

Savvy transportation insurance buyers are well aware of the importance of doing business with insurance professionals who have been in this specialty insurance niche for the long haul. During challenging times like these the importance of solid risk management is highlighted. The fleet owner who groups his insurance agent along with his lender, attorney and accountant will be well-served during crunch time. The insurance buyer who treats this vital financial service as a commodity often enjoys short-term savings with potentially disastrous long-term consequences. Putting your insurance program “out to bid” implies too great an emphasis on price. Yet it is crucial to reduce your total insurance cost. How is this possible?

Regarding your insurance agent as a trusted professional advisor makes it possible. You need to be able to rely on your agent to place your coverage with solid insurance companies. Your agent must be responsive when you have accidents, which are an unfortunate and inevitable fact of life in the transportation business. Your insurance program must fit your company — thus your agent must be competent to recommend appropriate limits of insurance and deductibles to provide the most equitable deal available. Your insurance providers should offer loss control services to assist your safety department in reducing your accident frequency. Fewer accidents means greater bottom-line profits for your fleet in two ways: by eliminating costs including repairs, deductible expense and equipment down-time; and ultimately, driving your insurance rate down.

The best way to satisfy yourself that you are doing business with an agent you can trust is to ask for — and check out — customer references. Be sure to ask about the critical service areas of claims handling and certificate issuance. Such an agent will be your advocate in the market maelstrom.