Trucking insurance is a cost that trucking companies must factor into their operations costs. It’s an important resource that can significantly impact the success of a trucking company. Without it, trucking companies are left vulnerable to high repair costs, medical fees, and even lawsuits.
Several factors determine the price of a trucking company’s insurance coverage. Some key factors may include:
- Type of cargo and its value
- Age of driver(s)
- Driving record(s)
- Condition of truck(s)
- Company’s safety rating
- Where the business operates
While trucking companies carefully monitor these insurance cost factors, some may still find the continual rise in insurance premiums frustrating if not perplexing. According to the American Transportation Research Institute, trucking insurance premium costs per mile have risen by 47% from 2012 to 2022. Experts believe there may be several reasons for this change:
Accidents
Over time, some trucking companies have lowered their hiring standards in order to hire more drivers and keep operations moving smoothly. Unfortunately, this has led to an increase in accidents believed to be caused by inexperienced drivers. Regardless, the rise in accidents within the industry results in higher risk exposure ratios for insurers, which can translate to higher insurance premiums for trucking companies.
Policy Capacity
Many insurers, who were previously willing to offer up to $5 million or even $10 million, are now only offering around $3 million and layering the rest to get to the requested coverage limit. This reduction in the primary policy’s coverage is contributing to a rise in premiums. Layering refers to a practice in which insurance coverage is provided by multiple policies or even multiple insurers. In this arrangement, one policy covers the initial portion of a claim while another provides coverage for the remaining portion.
Broker Liability Coverage
Decades ago, broker liability coverages were not as crucial to carry as they are in today’s more litigious environment. As plaintiffs are more often claiming negligence against brokerage entities the additional coverages required have resulted in additional premiums that once were not as needed. This is especially important for long-haulers that are brokering loads to third-party carriers that will then haul the freight to its intended destination. Unfortunately, these added coverages have created extra expenses for transportation companies, contributing to the overall rise in trucking insurance premiums in recent years.
Litigation
The rise in lawsuits against trucking companies has increased the financial burden on insurance companies, which are responsible for covering both the cost of legal fees and the claims. In fact, according to a report, both small and “nuclear” verdicts in these cases have resulted in average payouts ranging from $406,000 to $450,000. This puts even more pressure on insurers to raise premiums and adjust their coverage options accordingly.
Economy
It’s worth noting that the insurance industry, as a whole, is not immune to broader economic factors. Economic conditions such as interest rates, inflation, and investment costs can all have an impact on the profitability of insurance companies, which in turn, can affect their ability to offer competitive rates to trucking companies.
For example, when interest rates are low, insurance companies may have difficulty generating sufficient returns on their investments to cover the cost of claims. This can lead to a decrease in profitability, which in turn, can result in higher premiums for trucking companies to compensate for the increased risk exposure.
Similarly, inflation can also contribute to higher insurance premiums. As the cost of goods and services increases, so does the cost of repairing or replacing damaged property and paying for medical treatment. This increased cost of claims can put a strain on insurance companies, which may respond by increasing premiums for policyholders.
Finally, investment costs can also play a role in determining insurance premiums. Insurance companies often invest the premiums they collect in order to generate income and cover the cost of claims. When investment returns are low, insurance companies may need to increase premiums in order to maintain profitability.
Overall, it’s important to recognize that insurance premiums are influenced by a wide range of economic factors that are, for the most part, out of the industry’s control.
Safety Regulations
Over time, additional federal requirements have been implemented to increase safety measures for truck drivers and other motorists on the road. These changes include electronic logging devices and other safety regulations aimed at protecting both drivers and property. Insurance experts believe that as these regulations take effect and lead to a decrease in accidents, they will ultimately lead to lower costs for both insurers and trucking companies. However, in the interim, the costs of implementing these changes have led to higher premiums as insurance and trucking companies adapt to the new regulations and requirements.
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