Poor Insurance Underwriter Performance Is Causing Increasing Rates, Expert Says
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The insurance underwriting industry continues to face financial uncertainty, characterized by historic underwriting losses for the transportation sector and rising insurance rates for motor carriers, insurance executives said during a virtual educational session at American Trucking Associations’ Management Conference & Exhibition.
“We are in very challenging times with respect to transportation,” said Ryan Erickson, executive vice president of McGriff Insurance Services, during the Oct. 21 session, noting that in 2019 the U.S. commercial transportation market recorded $4 billion in underwriting losses — the worst performance on record — which resulted in rate increases averaging 10% to 15% for motor carriers with favorable loss experience.
“The industry doesn’t do a very good job of segmenting, specifically transportation. As an underperformer, transportation is going to be negatively affected,” he said. “While we are still seeing insurance premiums increase dramatically, we’re still seeing the same results. Losses are outpacing insurance companies’ ability to capture rate. Until the industry can show profitability, we’re going to continue to see much of the same.”
A panel of executives spoke at a session titled, “Finding Affordable Insurance in a Hard Market.”
There are no performance numbers yet available for 2020, but with the COVID-19 pandemic the industry projects improved claim frequency as roads are less congested in most areas and mileage is down industrywide. However, claims are getting much larger, so they are offsetting the benefit of fewer claims, Erickson said.
Contributing factors for the increased rates include available insurance capacity, distracted driving, the driver shortage, nuclear verdicts and litigation financing, Erickson said.
The good news is that despite the underwriting woes, the insurance industry continues to offer a large variety of plans that can be tailored to a motor carrier’s insurance needs and financial ability to pay. But navigating all the options can be a challenge in itself for truckers.
Jeffrey Toole (left) and Jim Millar by Transport Topics
The insurance alternatives range from guaranteed cost and qualified self-insurance plans to small and large deductible options, panelists said.
Guaranteed cost insurance programs offer options including fixed cost and fixed premiums to those with less administrative burden, and a lack of incentive to reduce losses to those that bundle services, said Jim Millar, vice president of the transportation group at Dubuque, Iowa-based Cottingham & Butler.
Millar said that insurers also offer transportation group captives ranging from return of underwriting profits and investment income to those with less market volatility and control over claims.
Jeffrey Toole, an attorney at Indianapolis-based Scopelitis, Garvin, Light, Hanson & Feary, told trucking executives attending the session that nuclear jury verdicts in truck-involved accident litigation are also playing a role in rate increases.
Toole attributes some of the increasing insurance rates to large jury verdicts against trucking companies due to an increasingly common court tactic by plaintiff attorneys using what is known as the “reptile theory.”
“What is done in the courtroom is the plaintiffs and their attorneys are trying to generalize about the defendant motor carrier, and perhaps the entire transportation industry,” Toole said. “Once violations are identified, they paint the motor carrier and the industry as placing profits over safety. The goal is to make the individual juror feel personally threatened, along with their family and the community.”
Nuclear verdicts have played a role in the increasing liability insurance options by transportation brokers to protect themselves from “negligent selection” and “negligent entrustment” claims against motor carriers in truck-involved crashes, Toole said.
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