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Trucking Insurance Rate Increases: The Industry Faces Steep Challenges Against Rising Costs

The U.S. relies heavily on commercial trucking. Stores, gas stations, hospitals, and doctors’ offices are just a couple of examples that wouldn’t have the facility to stock items from critical necessities to everyday necessities without them. In fact, in 2019, U.S. truckers moved almost 12 billion tons of freight across the country — which is an increase that has occurred steadily every year for the last five years. As such, it’s no surprise that the industry’s total revenue reached $791.7 billion.

It should go without saying that without the trucking industry, life would come to a screeching halt. That’s not hyperbole either. If trucks stopped so would package deliveries. Hospitals and fuel stations would experience shortages. Eventually, stores would run out of food, there wouldn’t be trash in ATMs, garbage would pile up, and assembly lines would stop running. In short, it would be disastrous. 

Because the commercial trucking industry is vital, you would assume that it’s thriving. Unfortunately, that’s not the case.  

Along with a driver shortage, some 800 commercial trucking companies closed during the first three quarters of 2019. And, unfortunately, that trend continued into 2020. According to a report from transportation industry data firm Broughton Capital, an alarming 3,140 trucking companies ceased operations in 2020. 

Moreover, it’s notoriously difficult for trucking companies to operate at adequate profit ratios, typically around 12-15%. Additionally, costs are increasing, further reducing those numbers. Among these expenses adding pressure to trucking companies is commercial liability insurance. 

Factors Affecting Trucking Insurance Rising Rates

The cost of trucking insurance has been rising steadily for several years, often by double digits. The average truck insurance premium rose 12% in 2018. It was closer to 20-30% for many small fleets, which make up most for-hire carriers — the American Trucking Associations reports that 97% of U.S. trucking companies operate fewer than 20 trucks, and 91% have six or fewer.

With pending legislation, the pandemic, and the fact that insurance companies aren’t showing profits, the issue is even more pressing now. Furthermore, trucking faces the additional problem of nuclear judgments, which is affecting almost all general liability insurance policyholders. Against trucking companies, these jury awards exceeded a staggering $10 million. 

Over 300 cases involving more than $1 million have been settled in the past five years. Compare that from 2012 to 2015 when just 12 cases were awarded nuclear verdicts totaling $900 million. The largest judgment against a commercial trucking company on record was awarded in Georgia in an accident case involving a fatal truck and a car in 2019. The average verdict increased from $2.6 million in 2012 to $17 million in 2020. 

Why is this so concerning? Because finding an insurance carrier to cover this exposure can be difficult. And, this is most likely why both Zurich and AIG completely withdrew from for-hire trucking. 

As a consequence, some insurance companies have followed suit or increased premiums beyond what is profitable for them. Aon estimates 250 million dollars of capacity would be exhausted by mid-2019, with some rates going up by up to 300 percent. 

The issue is compounded by federal legislation. This increase in liability coverage is in response to concerns about road safety, as the proposed INVEST Act would require carriers to have $2 million in coverage (as of this writing), an increase from the current $750,000 requirement. As a result, carriers and insurers will experience even greater price pressure.

What Can Be Done To Keep Trucking Insurance Rates Low?

The following are some options for companies looking to stay competitive in tough insurance markets:

• Increase the qualification requirements for drivers. For a professional driver to become employed, many industries require a clean driving record for six months. In addition to improving safety, an increase to 12-plus months will compound today’s 61,000 driver shortage. 

• Enhance safety features. It’s possible for businesses to invest in new safety technologies, such as inward and outward-facing cameras or speed limiters to further enhance safety. However, these features will increase overhead and capital costs. Nowadays, these investments in safety are required by most insurers. 

• Join larger fleets. Instead of operating under their own Department of Transportation authority, owner-operators can lease their equipment to larger fleets. The drawback is that they most lose some independence, but on the flip side, they’ll gain access to the fleet’s insurance-buying power.

• Captive. Increasingly, companies can form or join captives, which are self-insurers backed by insurance companies. The cost, time, and effort required by captives are relatively high, but they offer coverage when other insurers do not.

• Reduce expenses. Probably the most harmful action, but also the most likely. An economy in which businesses cut management and compromise on safety is reflected in the amount of time that companies run their equipment. Also, they may elect to purchase coverage of the FMCSA minimum as opposed to the industry standard of $1 million. A rising loss ratio is a result of more claims being filed by insurers. As a result, long-term insurance capacity will decrease and costs will go up. 

• Settle lawsuits. When trucking companies believe the law is on their side, they can settle rather than take the case to court. In the current economy, individuals may prefer accepting lower offers than pursuing long court battles, so they will incur these out-of-pocket costs.

There’s one more suggestion from Patrick Gaskins, senior vice president of Corcentric Fleet Solutions, stick to your plans and don’t panic. “It is sort of the ‘slow but steady wins the race’ philosophy of trucking,” he writes in FleetOwner.

“These fleets don’t ignore disruptions; they embrace them. These are likely the forward-looking fleets that already have ordered electric trucks so they can test them out in their operations,” he adds. “At the same time, they have not abandoned their plans to purchase new diesel-powered units to replace their existing assets. They understand that disruptions can be managed by keeping a level head and not abandoning their plans.”

Macroeconomic Factors Affecting Trucking Insurance Average Costs 

So, what does this mean for the economy as a whole? 

A commercial trucking company that can remain in business will not just absorb the rising insurance costs by themselves. I mean just take a quick glance at your current surroundings. Approximately 70% of your everyday items were delivered using class 8 trucks. And, you can anticipate that these items will be going up in price.  

In the event of more company closures, you may no longer receive deliveries within two days. As manufacturers and retailers compete for trucking capacity, you will have to wait longer for all purchases. This will prove to be a devastating blow to the 80% of US communities who rely entirely on trucking to deliver their goods. 

Moreover, the trucking industry employs one out of every 16 Americans. Thus increasing unemployment. 

There are also many trucking companies that skimp on their safety or let their insurance lapse completely. For the 274 million cars and trucks on the road today, that creates far less safe conditions for everyone. 

Cutting Insurance Cost by Managing Risk with AI and Machine Learning

Trucking risks can be managed thanks to TrustLayer. TrustLayer protects everything from logistics companies that hire thousands of carriers annually to haul freight to general contractors who use for-hire carriers to deliver key materials. 

To track and manage certificates of insurance, our technology uses automation and machine learning. Every carrier’s coverage thresholds are monitored, expiration dates are tracked, and active insurance is automatically applied before a driver leaves the yard.

As a result, TrustLayer will keep carriers on the road safely, while also saving trucking companies valuable time and money.