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The Rough Notes Company Inc.



March 29
13:08 2021


Assessing the effects of the pandemic, plus previous concerns

By Lori Widmer

Large losses, more severe events, and an overall tightening in the market—that’s what some predict the transportation industry will face going into 2021. Still, while carrying the dregs of 2020 pandemic-related challenges into the new year, the news isn’t all bad.

Some transportation segments, such as the trucking industry, could be the first to see recovery. A Red Arrow Logistics Trucking Industry Outlook report predicts a rebound could be driven by a demand for more consumer goods and more overall consumer confidence. According to American Trucking Association data, freight volumes in 2021 are expected to increase, and record-level increases in intermodal loads are predicted.

Mark Gallagher

It’s a bit of a whiplash effect over 2020 activity. “We really saw the impact of the pandemic effect, certainly in the second quarter of 2020. Trucks were off the road and freight was tough to come by unless it was necessity items,” says Mark Gallagher, Risk Placement Services’ (RPS) National Transportation practice leader. “Less congestion on the road led to lower loss frequency in the industry.”

It’s allowing the industry a bit of a reset, says Gallagher, and one that’s sorely needed. He notes that combined loss ratios were at 109.4, capping a full decade of negative profitability. The pandemic-caused slowdown, he says, gave the industry a break in terms of loss frequency.

Dennis McGuire

The underwriting landscape

Dennis McGuire says continuing profit challenges in commercial auto are prompting more underwriting scrutiny as rates climb. McGuire, Nationwide’s Casualty Underwriting leader, says larger fleet accounts and those with spotty historical performance can expect to see the greatest scrutiny and pricing increases, especially in the excess coverage area.

His colleague agrees. “We will continue to see upward pricing in the market tied to poor performance continuing in the line,” says Gary Flaherty, vice president of Commercial Auto at Nationwide E&S/Specialty. “Historic loss drivers include catastrophic losses related to nuclear verdicts, medical and litigation costs, and market uncertainty related to the pandemic. The market should and needs to remain firm.”

And firm it is, at least from the underwriting perspective. “Over the last few years, commercial auto carriers have tightened their underwriting appetite in an attempt to focus on what the carrier deems profitable classes,” says Conor O’Leary, president of Shelly, Middlebrooks & O’Leary, Inc. “This has resulted in some disruption in the marketplace as these carriers exit specific classes of commercial auto.”

“We are consistently seeing 8% to I0% increases or more, even without claims in the previous year.”

—David Zahm
Risk Advisor and Producer
Robley Insurance Services

Those that remain in the space are adjusting pricing. “We are consistently seeing 8% to 10% increases or more, even without claims in the previous year,” says David Zahm, risk advisor and producer for Robley Insurance Services. “On ‘Main Street’ accounts, insurance carriers will adjust the other lines of coverage to compensate for the increase in auto, especially if the account is clean.”

Gary Flaherty

Part of that increase might be attributed to the demand for last- mile delivery. According to a HUB International Transportation Outlook for 2021, this demand has pushed underwriters to re-examine risks and coverage options for each insured’s scenario and fleet mix.

“On-demand delivery and last-mile delivery services grew exponentially, and carriers had to address the exposure with some carriers specializing in these operations,” says McGuire. “Usage-based insurance (UBI) for auto insurance is becoming more prevalent in commercial lines, especially as a result of the pandemic and changes in driving exposures.”

As a result, McGuire says to expect to see more use of predictive analytics. “Robust safety programs along with telematics and dash cameras are becoming more common as carriers and fleet owners seek to reduce losses.”

Claims mounting

From a claims management perspective, the motor carrier industry and its insurers are facing several issues today that are directly causing severity spikes and larger loss costs, according to Keith Dunlap, Transportation Practice leader with risk and claims management firm Gallagher Bassett.

“In addition to the continued lack of predictability and fundamental fairness in our court systems, industry claim professionals are faced with a plaintiff’s bar that more than ever is collusively aligned with medical providers,” Dunlap says.

“[The trucking industry] really saw the impact of the pandemic effect, certainly in the second quarter of 2020. Trucks were off the road and freight was tough to come by unless it was necessity items.”

—Mark Gallagher
National Transportation Practice Leader
Risk Placement Services

“These providers’ intentionally inflated medical costs are being subsidized or guaranteed by private companies that offer a ‘letter of protection’ to both the medical providers and the injured plaintiff. In these cases, plaintiffs are contractually waiving their right to use health insurance in favor of treatment on a lien to drive up damages,” he adds.

David Zahm

That troubling legal landscape is adding another layer of complexity onto the transportation industry’s risk portfolio, which is already dealing with a number of daily claim drivers that cause plenty of their own challenges. “Distracted drivers and inexperienced operators are significant drivers of claims and losses,” says McGuire. “While losses may have many contributing causes, such as poor vehicle maintenance, inadequate traffic controls, inclement weather, etc., well-trained, responsible drivers can compensate for these circumstances.”

Severity of claims, says Zahm, is of paramount concern. More trucks on the road, more distracted drivers, and the continuing shortage of quality operators are causing a trifecta of loss costs. That, combined with increased lawsuit frequency and severity, has created a perfect storm that Zahm says agents cannot ignore any longer. Nuclear verdicts and active plaintiff’s lawyers have spurred agents into action on behalf of their clients, he says. “The best agents have formed a partnership with their customers to help them improve and document their safety practices.”

Conor O’Leary

For Gallagher at RPS, the number one claim issue is lack of documentation to support claims. Agents and brokers, he says, should be advising clients on improving documentation and communication of safety practices. “This allows carriers to defend their clients when a large claim occurs,” Gallagher adds.

Reducing costs through risk management

That’s just one strategy agents can educate their clients on. McGuire says fleet owners can improve their insurance programs with “responsible hiring practices, including drug screening, effective safety programs along with telematics, favorable Federal Motor Carrier Safety Administration reports” and dash cameras, which Flaherty adds provide full documentation on crashes and accidents, eliminating doubt and determining contributing factors.

Video evidence can also help organizations improve their safety protocols, and see how effective their driver training is, says McGuire. “Proper driver selection along with effective driver safety policies are critical to managing losses. This applies to all businesses with auto exposures, even when driving is secondary to the primary work responsibility, such as salespeople or residential HVAC technicians.”

O’Leary suggests that active risk management processes should include the use of telematics in the vehicles. Such devices “can provide excellent training examples to identify where drivers need improvement prior to an accident,” O’Leary says.

“On-demand delivery and last-mile delivery services grew exponentially and carriers had to address the exposure. … Robust safety programs along with telematics and dash cameras are becoming more common as carriers and fleet owners seek to reduce losses.”

—Dennis McGuire
Casualty Underwriting Leader

“Commercial auto carriers have seen the value a strong safety program can provide,” says O’Leary. “Recognizing the costs associated for smaller (1-15 power unit) accounts to implement these programs, most insurance carriers offer these services either as part of the policy or for a nominal additional premium.” Agents, he says, should encourage their clients to utilize programs their carriers offer.

Advice for agents and brokers

Agents and brokers are trying to help clients improve their insurance program results, which Zahm says is easier than one thinks. “Here’s the good news—the way to mitigate your risk also is the same way to reduce your cost in the market—be a best-in-class trucking carrier. That being said, some companies do the right things but they do not document them—you have to do both to have the best chance of mitigating your risk and attracting a strong preferred insurance carrier.”

That’s where working with a carrier can bring real value to the client. “Agents can work with their carriers to access loss control services and resources to help improve driver safety and selection,” says McGuire.

Keith Dunlap

Also, agents should become experts in the transportation line of business, says Flaherty. “Agents specializing in commercial auto have continued to transform themselves and lean into expertise. From retail to wholesale, offering clients a differentiated value proposition that helps the client understand their performance and how it relates to their insurability can be a difference in insurance carrier interest. True experts in this space have the capabilities and resources to bring together the right client with the right insurance carrier.”

That means paying more attention to the risks you are presenting to the insurer, says Dunlap. He advocates for agents to become an active part of the underwriting process. That means getting clients to improve the selection, training, and supervision of their driver operators. “Post-accident, will that agent and their motor carrier’s vetting processes hold up to scrutiny? Those agents and trucking companies that under-stand and embrace this effort will be in a better position to assist claims management professionals in defending against negligent hiring and entrustment allegations.”

Zahm says more advocacy and contact in general is essential to helping clients improve their insurance programs. “The best agents sit down with their clients and help them understand what it takes to mitigate their risk and keep their insurance premiums reasonable. They will explain all of the options—traditional and captive—and walk them through the pros and cons of each. Most importantly, they will form more of a risk management partnership with the customer and help guide them, rather than just showing up with a policy once a year.”

For more information:

Gallagher Bassett


Nationwide E&S/Specialty

Risk Placement Services

Robley Insurance Services

Shelly, Middlebrooks & O’Leary, Inc.

The author

Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.

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