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Trucking Rate Increases

Shining a Light on Trucking Rate Increases

Posted in Transportation

Author: Andy Hamilton

These days, it’s common to hear our trucking agents ask “ Why did my insured’s rate go up?” It’s a good, and honest question; especially when the insured has had no claims, a clean driving record, and no endorsement activity. It can be hard to deliver a 5% increase without having a good explanation. Here we’ll attempt to arm you with such info, so when that inevitable question does come, you’ll be ready. As you’ll see, there is not just one answer:

1. There Are More People on the Road

10 years ago, there were 209 Million Americans with Driver’s Licenses; today, we’re looking at close to 228 Million. The increase is also representative of truckers. “Truck Driver” is the most common occupation in 29 States. As 72% of all material goods in the US are moved by trucks, and with the economy over the last few years on the upswing, there are simply more trucks on the road than ever before. The economic demand for trucking has been so great that it has led to…

2. A Driver Shortage

Currently, there’s a driver shortage in the U.S. of nearly 60,000 people. Think of the Cleveland Browns stadium being completely empty, and needing to fill it up with truck drivers; that’s the current gap. This need is only expected to accelerate as the aging population of truck drivers retires, with shortage estimates of 160,000 over the next decade. This has led to more aggressive hiring of not-as-experienced drivers. This hiring has, in part, led to… 

3. More Frequent and Severe Accidents Involving Commercial Trucks

The combination of more Americans on the road and less experienced commercial truck drivers has created an environment for more accidents. Since 2009, (when the truck-related fatality rate was at its lowest), there has been an increase each year, with 2017 showing a 30% increase from 2009 levels. If you remember, something else started happening around 2009… that’s right…the Smartphone starts becoming more ubiquitous. Pew started keeping statistics on this in 2011 when the percent of U.S. adults that were smartphone users was 35%. In 2019, that number is 81%. Most of us are aware of how pervasive a problem distracted driving has become.  If you don’t believe me, just wait until the next time you sit through an entire left turn light with the driver in front of you oblivious; no doubt, head tilted down, and eyes on the screen. Correlation doesn’t always equal causation, but there’s been a strong link to the culture of interruption helping drive the increase in traffic accidents involving large trucks. Because large trucks often weigh 20-30X more than a passenger vehicle, when something does go wrong, it can often be severe. This severity has led the trucking industry to be…

4. Targeted By Sophisticated Law Firms

If you Google “Truck Accidents”, the entire first page is dedicated to law firms, or law firm searches. Many of the websites of these law firms are astute enough to list the size of potential settlements, as well as past settlement amounts. One law firm lists their $80M Settlement from just a couple of years ago, while another touts a $101M award. The industry refers to these as “Nuclear Verdicts.” With Federal insurance requirements of $750k to $5M, trucking is a targeted industry (anyone that’s driven on an interstate no doubt has seen the law billboards asking “Injured by a Truck?”) The injury settlements from truck cases have become so lucrative, that third party financiers have gotten in on the action; providing funding for litigation in hopes of reaping investment returns. Insurance companies are keenly aware of the increasing size of civil jury settlements and pay particular attention to the areas of the country whose jury pools are generating the largest awards. As insurance rating data evolves and continues to get smarter, a risk that drives many miles through a high jury award area may be rated differently than a similar risk that doesn’t. Insurance carriers are also aware of the younger demographic shift in juries. No matter our opinions, Millennials and Gen Z have grown up in a “social justice” culture, and this thinking has directly contributed to larger settlements, but also contributing to larger settlements are…

5. Rising Healthcare Costs

Large settlements are due in part to sizable medical outlays directly associated with a trucking accident. Large rehab bills and the incentive to treat come in to play when damages are calculated. Medical cost inflation is certainly on the mind of every truck insurance carrier when calculating their latest rates. This fact comes as no surprise to anyone that’s received a medical bill in the last few years. The average annual income increase of the American worker has not kept up with the increase in healthcare costs. Estimates put health care spending at right around 18% of the U.S. GDP. To use a familiar timeframe, the average healthcare cost per person in 2009, was $8,134; in 2017, it was $10,739 ( if you want a real shock, in 1960, it was $146/person). When you factor in more traffic, distracted driving, less experienced drivers, increased medical costs, and larger legal settlements, the picture becomes clearer as to how…

6. Trucking Insurers Have Not Been Profitable

Since 2010, the commercial auto insurance space has not returned an underwriting profit. The components listed above have proven to be formidable when underwriting to a combined ratio under 100; leading insurers to move rates northward (or exit the commercial auto market altogether). The commercial auto combined ratio has performed at around 15 points worse than that of the rest of commercial lines insurance, putting its close management of risk profile pricing high on the priority lists of Chief Underwriting Officers and actuaries alike. 

So, while having the conversation surrounding rate increases is never easy, we hope that you’ll be better equipped to deliver value, as well as educate your insureds when answering that age-old question… “Why?”  

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