Specialty Lines Markets

Truckers point the way

A look at the road ahead

By Phil Zinkewicz

For those in the property and casualty insurance industry who are waiting, fingers crossed, for the current soft market to begin to harden, there might be a light at the end of the tunnel—and we’re not talking about the proverbial oncoming train. Some experts in the commercial auto business believe that the trucking segment is usually a harbinger of the next property and casualty market cycle. Furthermore, they believe that rate levels in trucking insurance are bottoming out.

“When the property and casualty insurance market begins to soften, it’s usually the trucking insurance end of the business that sees the first falling off of rates,” says Michael Oliver, senior vice president of 5Star Specialty Programs, who manages trucking, tow truck operators, parking and professional liability programs. Conversely, when the market begins to harden, “the trucking industry is first to experience the upswing in rates,” says Oliver. “We think that trucking insurance rates are near their lowest point. We’re hoping that a shrinking of capacity will bring about a slight hardening of rates next year.”

5Star Specialty Programs develops and provides specialty underwriting for commercial insurance programs, including transportation and related risks, for Crump Group. In the commercial auto end of the business, 5Star provides programs for intermediate- and long-haul truckers, commodity goods carriers, public auto (charter, school, shuttle, limo, and taxi), waste haulers, transfer stations, recyclers, septic and medical transporters, among other transportation risks.

Bob Alkire, senior vice president of 5Star Specialty Programs, manages public auto, waste haulers, tow truck operators, parking and professional liability programs. He says that the market is still soft for these exposures, just as it is for trucking. He is hopeful that there will be some signs of a turnaround this year. However, both Oliver and Alkire point to outside forces that are affecting the commercial auto insurance business.

“The American Trucking Association has said that the shipment of freight by trucks was down in July, August and September 2008,” says Alkire. “Retailers are predicting that sales will continue to drop, and that’s bad for truckers. Of course, the drop in fuel costs is beneficial to truckers. But if there’s nothing to ship, trucks remain idle.”

Both Oliver and Alkire blame the current economy for problems in the commercial auto insurance market. “People are out of work and short of money,” Alkire says. “When people are in that situation, they don’t rent limos or ride in taxis. People who have fallen on hard times don’t go to the casinos, so charter buses are seeing a falling off in business.”

In addition to the faltering economy, truckers are being affected by demographic changes taking place in the United States. “Baby Boomers are reaching retirement age,” says Oliver. “As they leave the trucking industry, the challenge will be to find talented drivers who will take their place. Another challenge for the trucking industry will be for truckers to keep pace with governmental changes in terms of safety requirements that are in the offing. We’re trying to get our carriers to work with our insureds to help them meet those challenges.”

Bleak picture

Dale Schueffner, vice president of agency services for Northland Insurance Company, paints a bleak picture of the trucking insurance industry today. “We are in a soft market coupled with an unprecedented economy,” says Schueffner. “For the entire summer last year, fuel prices were soaring. Small owner-operators are out of business. The ones that remain have signed up with fleet operations and will probably stay there until the economy is better.”

Northland Insurance provides property and casualty insurance and services for owners and operators of commercial trucks, limousines and shuttle operations, and others whose businesses involve transporting people or goods. In premiums written, Northland Insurance is one of the top transportation insurance providers in the country.

Schueffner says that the soft transportation insurance market is in part the result of new players that have moved into the area, leading to irresponsible pricing. “The new competition is putting pricing pressure on insurers. The new players will stay around for a couple of years and then retreat when the losses come in. In the meantime, those of us who are committed to the market are working to enhance our products and services. We want to make sure that our trucker clients are getting more for their money. We have expanded our cargo coverage, for example, to include personal effects. And we’ve introduced identity theft coverage. We have also introduced a disappearing deductible for our safer drivers.”

In a thumbnail sketch of the current state of the trucking insurance industry, Martin F. Sullivan, executive vice president of marketing for Sovereign General Insurance Services, says that the market remains “super soft” and adds, “Who knows when it will end?” Perhaps next year, he says hopefully.

“Premiums are still going down. People are writing accounts past the burn factor, especially in the physical damage area. The large fleets are getting bigger, and the small operators are going out of business,” Sullivan says.

Like Schueffner, Sullivan observes that new players in the trucking insurance business are driving down rates. “Our book of business is off 10% from 2007. A couple of years ago, there were only 40 companies writing trucking insurance business. Today, there are more than a hundred,” he says.

Janner Holliday, president of International Brokerage & Surplus Lines, Inc. (IBSL), describes the trucking insurance market as “moderately stable.” Says Holliday: “By that I mean that there don’t appear to be any market standouts, someone trying to grab a whole lot of market share. Of course, the economy has hurt everyone, but it seems to have affected the short-haul trucking market more than the long-haulers. In a poor economy, municipal construction and road work are cut back, so short-haul truckers follow the catastrophes to get work in debris removal. Of course, that’s a problem for insurers because when an insured moves to another part of the country to get work, that insured becomes a different risk than what was originally insured.”

IBSL, based in Lakeland, Florida, is a managing general agency that has long been globally recognized as a prominent underwriter of transporta-tion-related programs, with an emphasis on trucking packages. Key programs administered include a truck owners package for cargo and physical damage, truckers liability, truckers GL, technology and professional liability programs, and liquor liability programs.

Clyde Holliday, founder and chairman of IBSL, takes a philosophical view of the difficult economic conditions and current soft market in transportation insurance. “We have to go through this kind of thing every 10 or 15 years to weed out the bad actors,” he says. “It’s a cleansing process.”