Driver shortages, regulatory changes and other pressures are affecting how trucking firms manage their businesses. And with all these matters on their mind, it's not surprising that insurance isn't top of mind for many of these customers. As a result, coverage gaps could occur, making the services of agents and brokers who understand the business vital. Those agents who understand the issues and exposures of trucking firms can attract new customers and build strong, lasting and profitable relationships.
Among the key challenges for some motor carriers-those that don't own their own trucks or those with mixed fleets that are subject to dual jurisdiction of the Department of Transportation and the Department of Labor-are reclassification, driver recruitment and retention, and operating profitability.
"Motor carriers that use an owner-operator or independent contractor (IC) model are dealing with the regulatory focus on misclassification of drivers," explains Stephen Mueller, managing director at OneBeacon Accident Group. "While this is not a new issue, it has continued to escalate. The current administration, its agencies and the unions have applied greater pressure at the federal and state level to try and diminish the IC model and have independent contract drivers reclassified as employee drivers."
Mueller says the costs associated with reclassifying these drivers to employees, including the purchasing of trucks, health insurance and workers compensation could cripple many non-asset based motor carriers that use the IC model. "In addition, if costs go up for independent contractor drivers-costs of their trucks, maintenance, fuel and insurance-then motor carriers will find it more difficult and costly to recruit and retain these drivers."
More drivers needed
Dave Firstenberg, president & CEO of Canal Insurance Company, adds, "One of the biggest challenges affecting the specialty trucking industry is a continued shrinking pool of qualified drivers, caused by the aging of the truck driver population." He notes that more than 300,000 new drivers will be needed by the end of the decade.
He points to the improved ability of the Federal Motor Carrier Safety Administration (FMCSA) to identify poorly run motor carriers and bad drivers using their safety management system (SMS) as being another major challenge. "The safety performance bar has been raised significantly," he adds. "Insurance carriers are using this public information to help select and price risks."
Belinda Wagoner, senior underwriter-transportation at Seacoast Underwriters, concurs. "The main factor affecting the trucking class today is the use of Safety and Fitness Electronic Records (SAFER) System data by underwriters to accept, deny, and rate risk," she says. The FMCSA has provided carrier safety data to the industry and the public for many years via telephone requests and paper reports. The SAFER System makes it possible to offer this information electronically.
"A significant number of truckers, large and small, are just beginning to understand the importance of maintaining satisfactory SMS scores," Wagoner adds. "Many truckers have, at best, a very vague understanding of the system."
Firstenberg says that motor carriers that don't monitor their SMS numbers for accuracy and fail to take appropriate action to improve results can see their insurance premiums increase thousands of dollars per truck.
"Agents can help their clients by encouraging them to use the FMCSA pre-employment screening program (PSP), which is available at a nominal cost," he explains. "They also can help by becoming experts on how SMS scores are calculated and warning clients when they see red flags that could drive up insurance rates." Scoring formulas and educational materials are available on the FMCSA websites ?(ai.fmcsa.dot.gov/sms).
Managing risks
Specialty trucking firms need to focus this year on reducing claim frequency and controlling severity when accidents do happen. "This is particularly challenging when a driver shortage exists and when safety records for every motor carrier are easily available to plaintiff attorneys," Firstenberg notes. "More and more attention is being paid to the safety record of motor carriers, in addition to the specific driver or truck involved in an accident."
He says insurance carriers find it more difficult to defend a case when any of the parties has a poor safety record. "Not only does a poor safety record bring with it a higher incidence of accident," he adds, "but when they do happen, they are also more severe." He believes on-board truck technology that monitors driving behavior may help offset adverse implications of the driver shortage.
Short haul intermodal trucking companies are facing safety issues from poor quality container chassis, he notes. A container chassis consists of a frame, wheels, axles, suspension system, braking system, safety appliances, and other components necessary for highway transport of a container.
"In 2009, federal authorities ruled that ocean carriers would be responsible for the safety of trailer chassis," Firstenberg explains. "Since then, ocean carriers started divesting themselves of their chassis fleets. Now, 98% of all ocean chassis in use today are older than the 2008 model year."
This has led to safety and compliance concerns. "The motor carriers are the ones stuck with the DOT safety violations when an inspection reveals a faulty chassis," he explains, noting that the industry is migrating toward independently managed chassis pool arrangements that are expected to eventually fix the problems. "But not all ports are converted at this point," he notes.
He explains that long haul and short haul trucking firms are facing increased competition from intermodal rail carriers, especially for heavier commodities. "It's much cheaper to haul heavy commodities long distances by rail than by truck," he notes. "Conversely, business has increased for the short haul 'drayage' trucking companies that haul intermodal containers from seaports to rail terminals."
According to Wagoner, agents can help clients with safety-related concerns. "There are training classes that help equip retail agents and brokers to deal with adverse SAFER issues they come across," she explains. "These classes, taught by highly trained and experienced loss control experts, provide agents and brokers with practical solutions for trucking clients.
"These solutions, when implemented, can improve a trucking client's ability to obtain or keep coverage," Wagoner adds. "They also can significantly increase the likelihood that an agent will be able to earn and keep the clients' business."
Coverage concerns
Wagoner points out that many trucking insurance buyers are interested in little more than the most basic coverage. "Auto liability is the primary coverage trucking firms are looking for today," she explains. "Skyrocketing auto liability rate increases experienced by insureds over the last 18 months or so have been overwhelming to prospective applicants.
"Add to that the tightening underwriting guidelines with respect to vehicle ages, number of years in business and driver acceptability," Wagoner notes. "What you often end up with are existing or potential clients who are just shopping for the basics that are required for them to survive."
Such shopping can leave gaps, however. "Probably the single biggest coverage gap in the specialty trucking market is pollution liability," explains Firstenberg. "The unendorsed business auto or motor carriers policy only covers pollutants attributed to the fluids used to operate the vehicle."
He points out that truckers need not have a special hazmat permit to haul most hazardous materials. "Many truckers will occasionally haul them," he adds. Even non-hazardous cargo can become an irritant or contaminant as a result of an 'accident.' "For example, if a trucker spills a tanker full of milk into a drainage ditch, this is a pollution event that will need to be cleaned up," he explains.
According to Firstenberg, some insurance carriers make motor carrier filings and attach the mandated motor carrier endorsement (MCS-90), which is required to protect the public. "This, however, is only a partial solution to the pollution exposure," he says. "The MCS-90 endorsement does not expand the policy's pollution coverage. It actually requires the trucker to reimburse the insurance company for payments it makes under the endorsement."
To avoid having to make potentially large reimbursements, he recommends that agents and brokers make sure pollution coverage is added to the policy. "Applicable in most states, the endorsement is titled 'Pollution Liability -Broadened Coverage for Covered Autos,'" he explains. "It provides coverage for the insured's liability for the release of pollutants contained in the cargo the insured is transporting," he says.
Coverage does not apply to liability the trucker assumes under a contract, he adds. "However, the additional coverage brings the trucker into compliance with the Motor Carrier Act of 1980 and eliminates the possibility that he or she will have to reimburse the company for losses," he notes.
Sales and service
Agents and brokers looking to grow their trucking business can start their search online. "The FMCSA has a database of all authorized truckers, which it updates monthly," explains Firstenberg. "The database contains the name, address, phone number, and safety statistics. Agents can mine this data and use it for marketing purposes."
Wagoner stresses the importance of working with good markets. "Common-sense underwriting is essential in any specialty class," she explains. "Agents and brokers need to find markets that will actually underwrite a risk. Central Analysis Bureau (CAB) reports and SMS scores are great tools, but they are being relied on too heavily when calculating rates for a specific risk." CAB reports help underwriters understand the financial strength of motor carriers.
Strong partnerships and solid risk management counsel can help agents and brokers hold on to trucking clients. "For example, it's vitally important for agents and brokers to educate their clients on pollution liability," explains Firstenberg. "Any trucker may, from time to time, haul hazardous materials. They can legally do so if they comply with DOT requirements."
Mueller likewise stresses the importance of agent and broker support for motor carriers. "If you're dealing with a non-asset based motor carrier, consider aligning with a competent transportation law firm to make sure the firm is properly structured," he explains. "Pay attention to the lease contract between the motor carrier and the independent contractors it uses to make sure that it addresses the drivers' independence, while not providing direction and control."
On a broader scale, he adds, retail agents and brokers can support the lobbying arms of industry associations who work on behalf of the trucking industry. "The Truckload Carriers Association, for instance, specifically works on behalf of motor carriers that use the independent contractor model," Mueller notes. "American Trucking Associations is another strong group that agents and brokers can work with."
In addition, Mueller says, retail agents and brokers can bring to the table a variety of insurance products-including occupational accident and contingent liability-that can reduce a motor carrier's insurance risk. "Agents and brokers who have great expertise in these areas can separate themselves from the field, attract prospects and retain motor carrier clients," he concludes.
SOCIAL SERVICES AGENCIES RESPOND TO CHANGE
Tough times call for increased agent, broker involvement
By Dave Willis
Perhaps the biggest business challenge faced by social service agencies and nonprofits is funding. That's been the case for several years. And there's no indication this will change anytime soon. This affects their operations, their exposures and how they view insurance-and insurance premiums.
"Social service organizations, and especially nonprofits, seem to be engaged in a never-ending search for additional funding," says Paul Siragusa, ARM, ASLI, vice president, Commercial Lines Underwriting for Philadelphia Insurance Companies. "Despite the usual assortment of fund-raising activities and special events, they also need to secure a steady stream of income from reliable sources." Often this comes in the form of state or federal funding.
"Dealing with cutbacks and regulatory changes has made for some significant challenges for social service providers," says Randall Hedlund, program director, Care Providers Services, a division of NSM Insurance Group. "We're at a point now where many of these organizations are struggling economically and really worrying about whether they can stay afloat."
Scott Grieco, president, Middle Market, at The Hanover, adds, "Tight margins open social service agencies and nonprofits to numerous risks. With an ever-increasing emphasis on efficiencies, more and more organizations are considering mergers and/or the expansion of services. Demand for services is growing and as nonprofits expand, they need to go through thorough due diligence processes to make sure that they understand liabilities they may be taking on with the services they add."
In many cases, business challenges vary by sector. "For example, the developmental disabilities community is going through a lot of systemic change," explains Brad Storey, MSW, assistant vice president, Risk Management Division, at Irwin Siegel Agency. "The move to managed care is probably the largest challenge these providers face."
He points out that several states have significantly overhauled how these organizations operate. "They are moving away from a fee-for-service model and into more of a managed care, capitated rate model of reimbursement," Storey explains. "This means they get a flat fee to provide services, which generally translates into rate cuts."
The technological environment for social services organizations also is changing considerably. "In behavioral health care, for instance, there is a big push for electronic health records and telemedicine," he explains. "Introduction of a lot of different kinds of technology can create some rather substantial exposures for organizations if they are not careful."
He points out that introducing comprehensive technology tools to people who are accustomed to working with people can get challenging on a couple of fronts. "First is getting funding for it," Storey says. "The second issue is making sure you have the proper people to manage it, since it's significantly different from what many providers are used to doing."
Agents and brokers can help social services agencies and nonprofits respond to business challenges. "To help address these issues, agents and brokers really need to be intimately involved in these organizations and in the social service industry," he explains.
"This will help them fully understand what is going on and help them better assess how to respond," Storey adds. "As social service agencies deal with these issues, agents and brokers need to really vet the operations to ensure clients and prospects are aware of and properly addressing their various exposures."
Insuring and managing risks
The tough fiscal situation many social services agencies and nonprofits find themselves in can frame insurance and risk management decisions. "For many, increasing insurance premiums is a huge concern," says Lisa Prinz, associate vice president, Human Services, at Harleysville Insurance.
"It's important for agents and brokers to stay close to the organizations, understand their exposures and make sure they're getting the best possible value for their premium dollar," she adds. She suggests agents and brokers shop at least every three years to gauge the market from a coverage and pricing perspective.
Hedlund sees similar interest among providers in reducing insurance costs. "Some of them-the smaller ones especially-would probably like to not have to buy insurance," he explains. "At the same time, they love insurance because, when they have a loss, they get paid, and that payment allows them to sustain themselves through what otherwise might have been an economic calamity."
He says agents need to reinforce the value of insurance. "Make sure social service providers and nonprofits remember that it provides the financial stability that lets them remain viable, even when something does come up," Hedlund says.
"For some of the smaller organizations," he adds, "it could be a matter of setting priorities. Do they want to go without coverage and risk their future, or would they rather, perhaps, eliminate a service and buy insurance to protect what they continue to offer?"
Price isn't the only insurance-related concern, of course. "One of the bigger risk management issues these organizations face is around employment practices liability," explains Grieco. "Often, an organization may think it has appropriate screening and training in place for employees and volunteers, only to find it was exposed to a risk within its existing workforce."
Grieco says this provides an opportunity for agents to showcase expertise and provide training for their customers. "The best agents are leveraging carrier professional development training capabilities and other tools with their nonprofit customers to educate them on risk solutions and provide more value," he explains. "This ultimately helps agents win and retain more business."
Riley Binford, CIC, executive vice president, Charity First Insurance Services, says, "D&O, particularly employment practices liability, continues to remain a hard buy for nonprofits with any kind of claims blemish on their record. Many D&O carriers will no longer touch a nonprofit if they have any claim; others have tightened up, offering much higher retentions and premiums."
Risk management issues also revolve around reputation loss, data security, and business continuity. "Data security is on everyone's radar these days," explains Grieco. "Hackers often target nonprofits, looking to steal valuable personal information. Client, staff, and donor information all must be secured."
"Agents and brokers need to make social service clients aware of what exposures exist," says Hedlund. "Educate them on how they can get hacked. Continue to advise them on how to handle financial records. And let them know that if something does happen, they need protection available to help pay for the costs associated with it and to fix the problem that led to it."
"Surprisingly," says Grieco, "many nonprofit agencies don't have solid business continuity programs in place. Agents can be at the forefront of a solution. They can bring together community leaders to help their nonprofit clients plan in advance for such issues. Of course, agents and brokers also can ensure the proper coverages are in place for any and all types of business interruption."
For many nonprofits and social services agencies, workers comp presents challenges. "In many states, it continues to be a real thorn in the side, due to a hard or hardening workers comp market in their state," says Binford. "It's especially challenging in that nonprofits often have fewer comp carriers to choose from and premiums are higher-much higher in some states. This forces many into the state's assigned risk pool or state fund."
Health care reform and the Affordable Care Act continue to challenge social service providers. There's no sign of that letting up anytime soon. "For the next several years, providers will be struggling to get a handle on the various effects of the Act," says Siragusa. "While the Act is intended to broaden Americans' access to health care in general, another of its goals is to provide a 'continuum of care' for people with multiple health issues." These range from high blood pressure to mental health concerns and everything in between.
"There is a growing need, especially in more rural areas, for the patient to be able to address all of his or her health care issues in a single trip to the doctor's office," he adds. "Multiple trips require scheduling transportation for multiple days, and patients wind up spending a great deal of time travelling back and forth."
Branching out
This is leading many social service organizations to seek a slice of what Siragusa describes as the "three-billion dollars a year in funding allocated under the Federal Tort Claims Act (FTCA) and branch out into more complex medical exposures including opening public health clinics."
He adds, "Needless to say, this type of divergence in operations precipitates the need for a significant change in the entity's risk management agenda. It also calls for a much closer look at its insurance policies." Siragusa says some carriers specializing in the social service marketplace won't be comfortable becoming a medical malpractice carrier that covers public clinics.
"There may possibly be exclusions or gaps in coverage under the nonprofit's package that will need to be addressed," he advises. "Or the agent may need to approach a med-mal carrier for specialized coverage." He points out that medical malpractice coverage is available through the federal government for operations deemed Federally Qualified Health Centers (FQHCs), but potential gaps may exist and entities still will need to buy general liability and property coverage for these clinics.
Siragusa recommends that agents and brokers with social service clients considering providing true medical services look into coverages provided under the Federal Tort Claims Act. "Many providers need to adapt and evolve in order to survive difficult financial times," he says. "We expect this coverage to be an area of some confusion over the next few years, and clients will be looking to agents for answers."
He says that several med mal carriers offer wrap-around coverage intended to fill some potential gaps on the FTCA med mal coverage. "This may afford clients some more peace of mind," he adds. "If nothing else, agents should hold regular conversations with their social service clients to discuss potential expansion plans or other changes in operations in the near future."
Binford stresses the broader value agents and brokers can bring to the social services arena. "Buyers are well served by agents and brokers who have a breadth of markets for both workers comp and D&O/EPL," he explains. "Agents that specialize in insuring nonprofits tend to understand the market and have a very firm grasp on both pricing and appetite trends for nonprofits and social service agencies."
He also points to the value of engaging more than P&C professionals in the mix. "An agency with a strong benefits department can go a long way in helping nonprofits through the complexities of the Affordable Care Act," Binford explains.
Pricing concerns
Prinz says retail insurance agents and brokers can help by acting as what she calls, "true risk management and risk transfer consultants. Advise on the proper coverages and retentions. Although nonprofits are very price-conscious, price should not mean doing away with much needed coverages."
She adds, "Agents and brokers and their insureds should be leery of extreme savings. They should partner with carriers that have human services experience and a fairly steady renewal increase policy. We have seen insureds save 20% one year only to get a significant increase the next year. This harms the nonprofit's budgeting practice.
"Before insureds decide on retentions," Prinz notes, "they should make sure they have the money in a fund to absorb the costs. Just because an insured had only one auto accident this year doesn't necessarily mean the same will hold true the next year.
"Large deductible plans can cause problems for organizations that have not evaluated their loss history for at least seven years," she adds. "They need to understand what they think they will be putting out and they need to be confident they have the money. An agent or broker is a great resource to do the analysis."
Prinz also encourages agents and brokers to help in other ways, as well. "They need to help social service agencies properly take advantage of all the services available through the servicing brokerage or insurance company," she says. "Carriers have many great resources, such as loss control, risk analysis, claims management and more."
She says not all agents and brokers and their insureds make use of these. "For example, ask if the insured is using a carrier's discount on all criminal background checks," she explains. "Is the insured considering a special event? Before doing so, it makes sense to call the agent or broker, who can consult with the carrier and the insured to make sure the event makes sense and that the insured understands what the ultimate cost of the event might be."
By doing all of these things, agents and brokers will help social services agencies and other nonprofits better manage their exposures-and their businesses. At the same time, they'll strengthen bonds with client firms, and boost retention and revenue going forward.
The author
Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.
