General Market Conditions – Primary Auto Liability
Due to capacity and decent loss history, the hard market that began in late 2012 is beginning to relax on moderate to good fleet accounts. However, carriers who dropped rates to target the most “vanilla” auto risks seem to have little interest in small fleet placements, distressed risks, and high hazard industry segments (such as energy).This means a continued trend of conservative risk selection as well as slow, but incremental rate increases for these types of accounts.
As a result, fleet submissions are flooding the growing marketplace in an effort to ensure the best pricing and terms available. Non-fleet risks are also being shopped due to the number of players who have exited the market or changed their appetite. This changing landscape provides opportunities to specialized carriers who have a clear target appetite, a proven history of writing transportation business, and consistency in handling claims and underwriting for auto risks.
Marketplace volatility continues in locations where a number of carriers are pulling out or restricting their appetite (Florida, Texas, and Louisiana specifically), as well in trucking niches like energy/tracking exposures, of which markets are leery. Additional factors include the nationwide driver shortage, further development of the Safety Measurement System (SMS) methodology, and the increased adoption of Central Analysis Bureau (CAB) in underwriting risks. The bottom line is commercial auto risks are being scrutinized and heavily underwritten, with every detail contemplated to help insurance companies improve underwriting results.
Contingent Liability
Contingent Liability is receiving more attention as truck brokers become better educated about their potential exposures. With the economy turning a corner, we are seeing a large number of new ventures, as well as companies that had exited the industry and are now finding their way back, creating opportunity for truck brokers where these new operations do not yet have established contracts and routes. Shippers are frequently mandating adequate insurance coverages for the truck broker, and more emphasis is being placed on strength of brokerage agreements and best practices in safety procedures and hiring practices. While more primary auto markets look to exclude brokerage exposures in their policies, there are stand-alone options to protect the truck broker, no matter their size.
Excess/Umbrella Auto
The excess transportation marketplace is in a much better state than it was a year ago, as there is more capacity available – especially in the lead $5M and then again above $10M. If the account has an above average loss-history and other positive measures (Safety and Fitness Electronic Records – SAFER, radius, overall driver profile), flat rates are likely, with even some rate reductions possible at renewal. Lexington/AIG, Berkshire Hathaway and Gemini Transportation are all top players in the lead $5M for middle market to large trucking risks. Distressed risks with poor claims history will have a harder time and could face rate increases.
Many of the top trucking companies are purchasing higher limits of protection due to competitive pricing available and the large judgments coming out of catastrophic accidents. Additionally, small to midsize trucking companies that may not have carried higher limits in the past are now purchasing excess or umbrella coverage for added “sleep insurance” to protect their companies, as well as appease shippers who require higher limits of their motor carriers.
Auto Physical Damage, Motor Truck Cargo
Despite recent trends, Auto Physical Damage (APD) and Motor Truck Cargo (MTC) have historically been profitable lines of business. Aging equipment appears to have been the leading cause in the increased loss development, as insurers dealt with a greater number of claims for equipment malfunctions (both APD and MTC), as well as a greater number of vehicles being totaled due the low value of the equipment. Additionally, higher fuel costs, in conjunction with a decrease in load traffic during the economic downturn, meant many truckers diverted or did not have maintenance funding. With an improving economy and changing emission requirements in California, new vehicles are finding their way back into larger fleets, creating an influx of equipment to the used-vehicle marketplace, which is driving prices down due to increased supply.
New entrants into the APD and MTC lines of business are keeping the rates lower than where many believe they should be, but the long-term specialty markets are no longer reacting as sharply to this trend. Cargo rates remain firm to increasing. Theft frequency is down, though severity is up with the same locations remaining the highest areas of concern: California, Georgia, Illinois, Florida and Texas.
Looking Forward
Despite the increase in vehicle miles traveled, the rate of fatalities has continued to decrease. This is partly the result of regulations and programs that have led to increased seatbelt use, drunk-driving initiatives, commercial vehicle mobile phone bans, and additional safety feature requirements for the equipment itself. Electronic On-Board Recorders (EOBR), which provide electronic records that ensure drivers’ hours remain within federal mandates, will likely further this trend.
The proposal to increase the current $750K minimum liability level to $4.42M (a reflection of 34 years of medical cost inflation) via the Safe And Fair Environment on Highways Achieved through Underwriting Levels Act (SAFE HAUL) of 2013 – still pending with the U.S. House through the 2015 fiscal year – will likely draw additional attention following awareness that came with the April 2014 collision in California that claimed many students’ lives, as well as the high-profile wreck in New Jersey involving a famous comedian. However, trucking industry associations believe an increased limit would have negative implications for owner-operators and smaller fleet companies and without actually making roads safer for the public.
This article was created in conjunction with the following team of brokers from AmWINS’ Transportation Practice.
Andrea Dickinson (AmWINS Brokerage of Tennessee); Joe Hutelmyer (AmWINS Transportation Underwriters); Liam Hutelmyer (AmWINS Transportation Underwriters); Tanya Buswell (AmWINS Brokerage of Texas); Tim Larocca (AmWINS Brokerage of Illinois)