But the more miles that truckers cover, the greater their exposures to potential hazards, which ultimately translates into higher insurance costs. Trucking is perhaps the hardest hit class of business under current market conditions. Standard markets are limiting capacity, reducing primary coverage limits and seeking double-digit premium hikes, according to the 2021 U.S. Transportation Market Outlook.
And now, in addition to higher post-pandemic insurance costs, the trucking industry also is facing higher operational costs with spiking fuel prices, higher wages to attract drivers that continue to be in short supply, and pressure from carriers to install telematics as a safety measure. Increased congestion and the nation's crumbling infrastructure also is putting more wear and tear on trucks.
Although federal legislation has been proposed to address the driver shortage by lowering the minimum age for CDL holders to 18 from 21, it will increase insurance costs for trucking companies since carriers charge higher rates for younger drivers. In addition, another proposal to raise the minimum liability insurance requirement from $750,000 to $2 million will surely increase costs for trucking companies.
Global supply chain shortages during the pandemic also put significant pressure on intermodal trucking, one of the fastest-growing segments of the transportation industry that uses two modes of transportation, such as truck and rail, to transport freight from shipper to consignee. This is a difficult class of business to place because of the complexity of intermodal trucking operations and the fact that most drivers are independent contractors.
"Our truckers empowered the United States to drive forward through the pandemic. From vaccines to medical supplies to food and virtually everything we use each day, they delivered," noted Mark Gallagher, Vice President, National Transportation, at RPS. "Unfortunately, until we can get safety measures in line to reduce claims and manage the rising costs of litigation, insurance premiums will likely increase as well."
Medium and large fleets are getting better pricing than small fleets because they usually are more committed to loss control by employing full-time safety managers and dedicated mechanics to monitor and correct poor driver behavior and maintain vehicles.
But higher insurance rates for this class of business also is attracting some new opportunistic entrants, creating some competition for veteran carriers. The question is whether this trend will continue after losses return to pre-pandemic levels. During the pandemic, the combined ratio for the commercial auto sector improved to 101 mostly due to less road traffic during government-ordered lockdowns.
"Because accident frequency was lower during the pandemic, some carriers made an underwriting profit," noted Andrey Miterin, Area VP-Transportation, at RPS. "But as the country reopens, we are seeing an uptick in claim frequency, which will most likely lead to loss results deteriorating."