Specialty Lines Market

Trucking—the road to recovery

Market is looking

By Dave Willis

For the trucking industry, 2010 represents the first light at the end of the tunnel, according to Deane Sager, vice president of industry practices for St. Paul, Minnesota-based transportation insurance provider Northland Insurance. "2008 and 2009 were certainly the bottom," he explains.

"In 2008, more than 3,000 firms with fewer than five power units went bankrupt," explains Michael Oliver, CPCU, senior vice president of managing general agent 5Star Specialty Programs, a Melbourne, Florida-based division of Crump, "and others left the industry."

Some segments fared better than others. "Refrigerated carriers tended to suffer least during the recession, primarily because they hauled food," Sager says. "Dry van, which is the largest segment, suffered more, but it's coming back. Hardest hit were flatbed carriers, which relied largely on the housing industry and commercial construction. They felt the greatest impact and are still struggling."

Certain motor carriers actually grew during the downturn. "Some very specialized tank lines, for instance, those that haul food-related products, did well," Sager notes. So did green industry trucking. "Those that haul blades for electric-generating windmills not only haven't experienced a downturn, they've seen an increase in business."

Today, notes David Firstenberg, president and CEO of Greenville, South Carolina-based Canal Insurance Company, the market continues to be competitive. "Economic stabilization seems to have led to modest volume increases," he explains. "Broadly speaking, trucking markets are a little better off than a year or two ago."

A contributing factor is reduced capacity. During the downturn, trucking firms that remained in business often mothballed equipment because there was little demand for services and no market for used trucks, notes Sager. Between firms that went out of business and trucks being parked, capacity has been reduced. "Greater demand for what equipment remains is spurring trucking along a little faster than the broader economy," he says.

Trucking market concerns

Trucking firms continue to face challenges. "High fuel costs have always hurt," says Oliver, "especially the small guy who can't negotiate fuel contracts. In addition, demand has been inconsistent."

Increase in the use of intermodal transportation is another issue. "Firms are having to adapt and shift work," says Firstenberg. "With increased interdependency of various modes of transport, routes, on average, are going to get shorter. That's good for some firms and not as good for others."

Regulation is coming into play, as well. "In my trucking career, which spans 30 years, there's probably more regulatory and economic challenges than I've seen," notes Sager. In 2010, trucking firms dealt with preparation for new rules from the Federal Motor Carrier Safety Administration on hours of service and rest.

"Other big news this year is what is known as CSA 2010," adds Firstenberg, "which creates transparency around driving records, driver fitness and inspection records of motor carriers. All of this is intended to make our roads safer and ultimately drive unsafe carriers and drivers off the road." But it comes with a price.

"CSA 2010 could have a significant effect on the cost of doing business," Oliver says. Added paperwork and the extra time required to implement and monitor compliance will likely cut into already thin motor carrier profit margins.

The Environmental Protection Agency also is getting into the mix. "There are new environmental regulations relating to truck idling time," says Sager. "The newest regulation addresses minimum standards for truck fuel economy for large trucks."

Health care is another pain point. "As I've traveled the country for the last year, health care is high on the motor carriers' radar, just as it is for any business," Sager adds. Staffing is another issue. "Partly fueled by the CSA regulation and partly fueled by long-term unemployment benefits, there's a driver shortage," he says. "It's expected to get worse."

For certain trucking concerns, technology is affecting operations. "Although it's inconsistent at this point, we're seeing increased use of GPS, drive cams inside and outside trucks that record behaviors, computer chips that measure speed and hard brakes before accidents and more," Oliver says. "It's really about behavior modification."

Insuring truckers

As in other industries, the insurance market for trucking is soft. "There's been a steady erosion of rate since about 2005 on the trucking liability and physical damage," Oliver explains. "I think we're seeing the bottom right now."

Firstenberg agrees. "I hear from reinsurers I've dealt with that accident-year results for all of the trucking specialists are starting to look more or less the same to them," he notes, "not encouraging."

Physical damage is facing extra pressures. "As economic pressures are applied, especially to the smaller owner/operators, their behavior is a little more stressed," Sager says. Fraud may be on the rise, as well, he adds.

Forms have changed—from a truckers form to a motor carriers form. "That just rides along with deregulation of the trucking industry," Oliver adds. Underwriter use of predictive analytics also is on the rise. "Particularly in the small fleet or non-fleet space, that's being used more and more to segment pricing," Firstenberg adds. The benefit of that, he says, is the ability to offer pricing and make a market for a broader range of clients, and to do so in a more fully automated way, because many factors can be captured in real time, using automated data providers.

Oliver has seen this trend, too. "Carriers are adopting predictive modeling techniques and gathering data they didn't typically seek a few years ago," he notes, "things like credit scores, access to fuel tax reports, which show actual miles driven, and contract information. If carriers know a trucking firm has a consistent contract and set route patterns, they might view that as a better risk, since drivers know the roads."

As with most industries, retail agents and brokers can best serve the market by combining expertise—internal or otherwise—with focused service. "With the challenges facing trucking companies, it's all about providing customer service, being there for their trucker when an issue arises or a need is there," says Nicole Lawrence, Northland Insurance regional vice president. "Agents need to be there to answer the phone and keep the insureds' trucks on the road.

"Retail agents also should get involved in education," she adds. "As truckers have questions, agents need to get involved answering them—whether it's about CSA 2010 or any other risk-related topic. It's all about providing value and being available."

Oliver concurs. "Become knowledgeable about CSA 2010," he advises agents, "Understand the client's operation and the implications of new regulations. By advising clients on the impacts and how they relate to insurance, they form a stronger relationship."

When expertise is not readily available in house, look outside. "My stock advice to retail agents and brokers is to make sure they have a very good general agent in their camp," Firstenberg says. "As a carrier, we believe strongly that the best general agents will have better results and, by extension, the best business relationships with their companies. Retailers need to pay attention to that and select their partner carefully."

Oliver similarly encourages agents to be thorough as they choose a partner. "As they seek out sources to write this business, they should find those with a full complement of trucking products as well as other products they can cross-sell," he explains. "For instance, an owner-operator may need occupational accident insurance because they're not typically covered on a workers comp policy. Are there limited medical plans you can access? You don't want to go to a lot of different places."

In addition to product and expertise, Oliver encourages retailers to consider financial implications of whatever they choose. "Agents need to be aware of what's involved, for instance, when dealing with captives or risk retention groups," he notes. "There may be financial implications to the customer and, as a result, to them. Understand to what extent the customer will—and wants to—become a risk bearer."

According to Firstenberg, agents need to also consider the importance of market predictability for their clients. "With accident-year results getting close to the edge, at some point underwriting companies will respond," he explains. "It's a question of when. The longer the adjustment is delayed, the more abrupt and more harsh it will be when it comes.

"All parties should be open-minded about taking things gradually," he adds. "Don't just shop for the lowest price. Because when the music stops, the adjustment will be sharp. Going from a 5% reduction one year to, say, a 35% jump the next is a big deal, especially for a smaller motor carrier.

"Predictability of cost is a whole lot more important," Firstenberg explains. "It's sometimes hard to think that way, but at the end of the day that's the case. In the end, when the market loses patience—and they tend to do so all at once—upward adjustments could put a lot of people out of business."

The author

Dave Willis is a New Hampshire-based freelance writer and regular Rough Notes magazine contributor.