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Opinion: The day of insurance reckoning is upon us

Posted: May 7, 2019 by Mike McCarron

Carriers with poor safety records are learning that insurance is a privilege not a right. They’re dealing with huge spikes in premiums, or worse, the bitter reality that no one will insure them.

Several carriers have recently shut their doors because they couldn’t get coverage, and I know of a large Ontario carrier where the only option was facility insurance. It’s hard to support annual premiums pushing $40,000 per truck.

The problem with insurance is everyone pays for the sins of the industry, including those that make safety a top priority. Several carriers I spoke with recently aren’t happy about rising premiums, but in an odd way think it’s payback for fleets that have cut costs so they can gobble up market share. As one fleet owner said to me, “Karma is a bitch.”

A hard market

In insurance circles, we’re experiencing what’s known as a “hard market”. This is when the cash that funds insurance transactions dries up due to a lack of capital and profit by retail insurance companies.

As a result, many insurers are abandoning the market. The underwriters that remain are making up for years of losses by increasing premiums on policies that have been too low for too long.

One large insurance company I spoke with expects it will take two to three years to get ahead of their pricing issues before they return to profitability. Unfortunately for trucking companies, this prolonged hard market may quickly turn into the lack of a market for carriers that don’t get their act together before their renewal date.

Increased claims

Trucks are expensive today, and one reason is technology that’s designed to make them safer and more environmentally friendly.

These bells and whistles make trucks more expensive to fix. Combined with skyrocketing settlements, goofy weather, and sketchy hiring practices, it’s no wonder the insurance sector has soured on trucks.

Fleets that have invested in training and technology to reduce accident claims are the real winners in this hard market. Safety is part of their culture. Their premiums may be going up but not nearly as much as competitors that have been cutting corners and rates.

Shrinking market

A carrier that can’t get insurance has two options: close the doors or be forced into facility insurance, which is frankly unsustainable. The prolonged hard market and double-digit rate increases will continue to shrink the number of fleets.

They’ll also make it nearly impossible for start-ups and smaller fleets to grow. Insurance companies that will write policies for these carrier are few and far between because the data indicates that, when fleets grow too quickly, loss ratios soar. Better check with your insurance broker before you take on a big contract that will double your size.

Hiring scrutiny

In particular, underwriters are scrutinizing hiring practices and the training of new drivers. Unfortunately, carriers that rush drivers into action are perceived as the worst possible risk. Hiring drivers is by itself a difficult task. Hiring drivers that insurers have to approve will thin out the already limited pool of applicants.

Insurance is a complicated business. Committing to safety is not very complicated. It’s a conscious decision that every carrier must make: invest in safety or pay lip service to safety. Many are finding out the hard way that paying lip service to safety is a lot more expensive.

  • Mike McCarron is the president of Left Lane Associates, a firm that creates total enterprise value for transportation companies and their owners. He can be reached at mike@leftlaneassociates.ca, 416-551-6651, or @AceMcC on Twitter.

 

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