Specialty Lines Markets

Commercial vehicle market

Trucking industry has critical questions, coverage issues to consider

By Larry G. France

It does not make a difference if you are operating a commercial vehicle powered by diesel or gasoline—the prices are on a major rise upward. The price of gasoline has risen 38% in the past year and has doubled since 2003, according to the Energy Information Administration. The price of a barrel of oil has flirted with the $100 level off and on. If independent drivers and transportation companies add a fuel charge to offset their operating cost, it can disappear before they reach their destination. In some cases it has put small operators out of business.

The high cost of operating a commercial vehicle is not confined to the trucking industry. Delivery, construction, florist, taxi, limousine, and agriculture operations, to name a few, are feeling the pinch at the pumps. The domino effect has softened recreation vehicle sales.

“2007 started out with the promise of markets showing restraint,” says Joe Hutelmyer, president of AmWINS Transportation Underwriters, Inc. “Price decreases were slow to follow other product lines’ sharper drop offs.

“There were no new entries into the marketplace,” he continues. “The traditional trucking markets were content to be somewhat aggressive on renewals but holding new business pricing to 5% to 7% below last year’s pricing. A couple of companies were dealing with some prior loss development issues, which helped to keep rates stable.”

However, Hutelmyer says, “As the year progressed, a few new markets entered the marketplace. Also, one or two of the big standard markets returned to writing trucking business, driving pricing downward. Big remains beautiful,” he states, “and pricing for larger fleets is more competitive (10% to 20% decreases) than non-fleet business (7% to 12% decreases).

“We are starting to see underwriting standards fall off also,” he continues. “Some due to inexperience on the company side and some due to the quest for market share in light of profitable results.”

Hutelmyer recapped some of the critical questions facing the trucking industry in the coming year as presented to the ATA by the American Transportation Research Institute:

“1. Hours of service issues—How will the proposed changes to hours of service regulations affect underwriting results? Will driver fatigue result, causing a negative safety impact?

“2. Driver shortage—Will the slowdown in the national economy have a positive impact on a driver shortage that is predicted to continue for years to come? Will there be pressure to accept younger, older or inexperienced operators?

“3. Fuel issues—What effect will the high fuel prices have on the industry? How will fuel surcharges be addressed? Will high fuel prices cause truck lines to cut back on other items such as safety and maintenance? Will fuel prices force more truck lines out of business? Will truck lines look to turn over older, less fuel-efficient vehicles for newer units?

“4. Congestion—Average truck speeds and system reliability within urban areas continue to decline. What effect will this have on future loss frequency and severity?

“5. Government regulation—What effect will hours of service changes, environmental regulations, and driver identification initiatives have on the industry?

“6. Tolls/highway funding—What effect will various highway-funding tools have on the economic viability of the trucking industry?

“7. Tort reform/legal issues—What effect will massive financial payouts have on underwriting results? Of particular concern is the disconnection between, and the inequity of, negligence and financial liability.

“8. Driver training and education— Due to the low operating margins common to the trucking industry, carriers often operate with limited training budgets, but they recognize the safety and economic benefits that training can provide. Will standardized driver training and testing require-ments improve underwriting results?

“9. Environmental issues—How will compliance with environmental programs that vary across states and municipalities affect the economic burden on the trucking industry?

“10. On-board truck technology—How will underwriters price carriers that invest in technology such as electronic on-board recorders, electronic forward collision warning systems, rollover and rollover stability systems as well as electronic speed governors?”

Hutelmyer says that “these issues that face the trucking industry directly affect decisions underwriters make in determining and pricing this class of business in the future.”

Tracy Simons, president at Custom Assurance Placements, Ltd., says that as a wholesale broker, they see many issues that can affect trucking coverage. “It is part of our job to point out these issues to the retailer when we can,” Simons says. “This does not alleviate the retailer’s requirement of knowing the markets and explaining coverage issues to the client. However, we like to help reduce the chance of an E&O claim or to help increase the chance of a sale.”

According to Simons, “Most surplus lines physical damage coverage forms have a ‘total loss endorsement.’ This endorsement makes the premium fully earned when there is a total loss. If you have a tractor or trailer that is totaled, then is not a good time to explain to the client that they will not be refunded money when they delete the unit. We recommend advising the client of this endorsement at the inception of the policy.

“Another topic of confusion has to do with excess cargo,” Simon points out. “Excess cargo can be purchased, but it is imperative that the agent check the underlying cargo form for coinsurance wording. Most policies state that in the event of a loss and there is other collectible insurance, the primary cargo carrier will pay only a portion of the claim relative to the proportion insured. This creates a situation where primary coverage could be compromised and result in an underpayment for a loss that does not exceed the primary limit. It is recommended that you get an exception to this policy language before placing an excess cargo policy for your client.

“Another hot topic is inadequate load documentation. This is the most common reason for a motor truck cargo claim denial,” Simons notes. “It is important for retailers to review the coverage wording in the policy with the insured. This is usually found on the first page of the policy form. Claims are being denied if the insured does not have a written bill of lading, contract or shipping receipt.

“We also try to capitalize on the coverage enhancements that provide an advantage to our agents,” Simons adds. “For example, Great American has non-owned container and trailer interchange coverages available as an endorsement to the cargo policy. This endorsement, when written in conjunction with cargo coverage, provides an excellent premium savings opportunity for the client.

“Additionally,” Simons continues, “we have markets that will write larger accounts on a gross receipts basis in lieu of a scheduled property form. This option alleviates the possibility of missing an addition or deletion of a unit on a high-activity account. It also makes the financing of these larger accounts much easier.”

Simons sums up the market by saying that “due to increased fuel costs and the slowing market, we have seen a decline in trucking production over the last year and a half. It has just recently started to rebound, but I am afraid that the recent fuel increases will set back the trucking market even further. That is why selling to this market requires all the service advantages you can offer.”

For additional information regarding this and other classes of business go to www.insurancemarketplace.com.

Upcoming Specialty Lines articles will include Contractors in February, Recreational Vehicles in March and Special Promotions including Hole-in One and Prize Indemnity for April. *