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Trucking Insurance – Livery Insurance: Premium Increase.

Substantial trucking insurance costs impact the trucking company and create a financial burden for businesses already facing the downturn in freight demand.

Since losses payout of $10 m or more for Insurers, brokers warn that liability policy costs have increased and will continue to increase. Last year, trucking companies reported double-digit percentage rises, and prices are expected to continue to increase in 2020.

The cost to insure commercial transport companies of all sizes has grown substantially, with smaller carriers who recently declared their lack of affordable trucking insurance as a main factor to closing their doors.

The James Reed chief executive officer of the USA Truck Inc., a major trucking company headquartered in Van Buren, Ark said in a November earnings call, “It’s a brutally tough insurance market right now.” Apart from the recovery in rates, there are real cost headwinds, he said, that might weigh the results in the first half of 2020.

Federal law calls for a guarantee of $750,000 per accident to cover drivers for trucking companies, and for most shipping contracts at least 1 million dollars is required. Although carriers with five or less trucks may require only this, bigger carriers also buy more layers of liability cover to protect themselves against larger claims.

According to the latest figures available from the American Transportation Research Institute, an industry group, costs for trucking insurance premiums increased by 12%, on average. This was the second highest increase in carrier costs after fuel in 2018, together with driver compensation, which represented the two biggest line costs that year.

Michael Nischan, vice president of EPIC Insurance Brokers & Consultants, said “A lot of motor carrier are facing 20% to 30% increases.” “These are motor carriers that are doing their best. If you cannot demonstrate that you’re obsessed with safety, you may not get renewed.”

Premium rates rise particularly fast as shippers demand higher limits from their motor carriers, according to Chris Demetroulis, managing director transportation practice at insurance brokerage Arthur J. Gallagher & Co. Many trucking customers pay twice as much for plans that have half the coverage cap they previously had, he said, considering that the insurer’s underwriters try to reduce its exposure to large payouts.

“The median verdicts have gone from $23 million to $44 million over the last 18 months,” Mr. Demetroulis stated

In one case, a 2016 head-on collision with a tractor-trailer in Georgia, which resulted in five members of the family’s death, resulted in a jury award of 280 million dollars last year against the motor carrier responsible.

CEO of the transportation and logistics practice  Mark Brockinton for risk advisory and insurance brokerage firm Aon PLC, said motor carriers are trying to minimize their risk in numerous ways. Some of these ways, said Mr. Brockinton: “utilizing equipment with collision avoidance systems, using speed limiters on their tractors (excessive speed is one of the leading causes of truck crashes), adopting hair testing to identify lifestyle drug users, and even avoiding traffic lanes where a pattern of large verdicts have occurred.”

The cost of insurance is one factor that contributes to truckers ‘ complicated operations. The demand for transport swung from a booming market in 2018 in to a steady slow, carriers are now focused on cost reduction.

The insurance cost was the greatest problem facing the trucking client of the company in 2019, says Mary Ann Hudson, CEO for the Bibby Financial Services Inc. transportation finance subsidiary which processed freight bills for companies. “If they have one blip on their insurance it’s increasing their rates astronomically,” she said. “Maybe it’s not even a full-fledged accident but a claim, and it’s causing their insurance companies to panic.”

A customer said that one cannot afford a rate increase of 24 percent, said Ms. Hudson. Instead, he decided to lease his two trucks to another company in order to use the insurance and operating authority of that carrier.

According to media reports, Fleetwood Transportation Inc., a Texas operator with around one hundred trucks, shut down on New Year’s Eve following the failure to renew its trucking insurance at rates that the company could afford.

Fleetwood CFO Ronnie King said in an interview that “Insurance was the only factor” in the closure, and refused to comment further.