The transportation insurance market continues to be, in our opinion, challenging for all participants, including buyers, insurers, risk managers, agents and brokers. 2021 began and ended with insurers maintaining underwriting discipline and buyers making hard decisions about balancing the protection of assets with affordability. COVID-19, with its ever-emerging variants and supply chain disruptions, continues to be at the forefront of discussions. Fortunately, it does not appear to have slowed down the industry or negatively impacted the transportation marketplace. In fact, the transportation industry continues to experience robust growth and historically high demand for services. This freight and passenger delivery growth created many new motor carriers and created a rapid increase in total industry premium available to insurers.
Key Trends Developing In 2022
Motor carrier earnings in the trucking segment set records in 2021 and Q1 of 2022
Despite shortages of drivers and the impact of COVID-19 on the national supply chain, established motor carriers set earnings records in 2021 and Q1 2022. Factors such as rising freight cost, increased tonnage per haul, and a rapid advancement in technology / efficiency have led to these record earnings. These healthy increases in revenues, in many instances, more than offset expense increases, such as insurance, vehicle costs and fuel.
Rising claim cost continues instigating huge increases to auto liability insurance
Motor carriers that continue to sacrifice safety are, in many instances, generating accidents that are more costly to defend. The challenges which could hurt a motor carrier’s loss ratios are factors like distracted driving, high vehicle purchase / replacement prices, high vehicle repair costs, driver shortages, and increased litigation. While there are more motor carriers than ever, the dynamic has changed according to Dennis Beecher, President of RT Specialty Johnstown office. There are more distressed risks and fewer “Preferred” risks today due to a shortage of safe drivers, increases in DOT scrutiny, and tightening guidelines of Preferred insurers disqualifying more motor carriers from their programs. Those fewer-in-number “Preferred” risks embracing safety and technology are more highly sought by a growing number of insurers and are expected to see only modest rate changes averaging +5-7% (with some risks potentially seeing decreases at renewal).
We expect the Preferred segment will see at or below inflationary increases, the remainder of the market will likely see +10% to +20%, and the most distressed segments (comprised of new ventures and risks suffering from adverse large losses or poor FMCSA safety scores) may see insurance rates increase of more than 25%
Even within this distressed segment, competition among insurers exists, especially since motor carriers can improve well-before their loss or safety history vanishes. Mike Kona, a Senior VP and Broker at RT Specialty, notes the competitiveness in this market is measured and thoughtful. “There are so many independent sources of data now, and markets are getting better at making consistent decisions about which types of risk they choose to compete. This segmentation often produces competition among a consistent group of insurance companies in different tiers of risk quality. For example, a three-alert account with reasonable loss experience can have four to five markets that might take a serious run at it, and, between those markets, the competition can be fierce. Unfortunately, often only one or two of those markets are approached, and the marketing list is filled with a stack of declinations from markets that have no interest competing on a risk with those characteristics. This may make it feel like the market has no alternatives for the account, which is oftentimes not true.”
Telematics are finally having a large impact in insurance availability and pricing. Technologies such as cameras, ELD’s, GPS, and driver assistance (such as collision and lane departure alerts) have begun the transition towards semi-autonomous driving. Motor carriers who’ve invested heavily are improving safety and, in many instances, are seeing long term insurance costs de-escalate.
Excess / Umbrella Liability
2022 brings little change to the excess market for the transportation industry, which includes motor carriers, final mile delivery, livery, and auto buffers for private business auto fleets. To some degree, the market is still catching up, as excess layers began to firm 18-24 months after the primary market. With no sign of tort reform on the horizon, along with the costs of social inflation and nuclear verdicts, no relief is in sight. The firmness is expected to continue throughout 2022, and rate increases may range from single digits to as much as 30% in lead layers. Excess towers beyond $5M can produce wild results as carriers exit the market and restrict capacity while the capacity remaining completely rethinks its exposure. Many insurers have first-hand knowledge of how easily an auto claim can now pierce a $10M or $20M attachment.
A few new carriers are entering the market this year, as well as some old familiar names re-entering. However, this capacity will not be naive, and although welcomed, may not be sufficient to mitigate the rate increase trends.
Motor Truck Cargo
One bright spot in the transportation market is motor truck cargo, which is expected to remain a buyer’s market. 2022 may bring rates that are generally flat for most accounts, with rate increases contained to risks with unfavorable loss experience, weak financials, or poor FMCSA scores.
Beyond rates, coverage terms are where value can be added, as insurers continue to offer broader and more comprehensive coverage. These broadened offerings include temperature change without equipment breakdown, broad bailee coverage (including terminal, cross dock, and warehouse liability) as well as coverage extending to standards of the Food Modernization Act for both damaged and undamaged cargo.
As has always been the case in this line, coverage terms and conditions require scrutiny. Certain forms may not be suitable for certain insureds. Although no form provides absolute answers, many can be tailored to a particular insured’s need, and it is important to engage with a wholesale specialist who can provide expertise in this area.
Understanding the market, preparing quality submissions on a timely basis, and choosing trading partners that have the appropriate market access and experience will be key in 2022.