As a leading indicator, the Transportation sector is generally considered a canary in the coalmine of the greater US economy. When the economy is expanding, freight carriers, less than truckload freight shipping (LTL) and other carriers, are often the first to reflect that growth, as demand for their services ramps up. On the flip side, Transportation is often the first place where economic slowdowns appear, as manufacturers and other shippers see sales dropping off and need fewer supply chain services.

Still, there is no crystal ball — but there is more than one variable to consider when it comes to the Transportation insurance market in 2024.

1. Inflation as The New Norm

Inflation peaked at 9.1% in June 2022, coming down to 3.67% in August 2023. Still, prices are high and hitting the wallets of Americans as they balance their checkbooks from month to month. According to The Bureau of Labor Statistics, the annual consumer price index is at 4% as of May 2023, significantly higher than the long-term average of 3.2%.1 It costs more to fix a car, to rebuild a house and go to the doctor. Those costs transfer to insurance companies.

From June 2021 to June 2022, prices for motor vehicle parts and equipment rose 22.8%. Inflation related to supply chain disruption and other factors amounted to an additional $9 billion in loss costs for auto physical damage in 2021.

Rising costs are inextricably linked to the cost of doing business for insurers because of the costs of claims and expenses. In 2022, insurers added more than $30 billion in loss costs, well above the typical average.2

Inflation is also leading to additional pressure on excess carriers and driving premiums higher.3

2. Nuclear Verdicts as The Unknown

A high inflation rate makes carriers more vulnerable to nuclear or runaway verdicts, also called social inflation verdicts, according to McKinsey.

Nuclear verdicts are considered verdicts in excess of $10 million. Since 2010, the median verdict of more than $10 million against corporate defendants is up 55%, according to a 2023 report by Marathon Strategies.4

And when it comes to nuclear verdicts, the transportation industry is arguably leading the way.

  • In 2011, victims were awarded $40 million after a trucker in Georgia failed to stop, killing two people and severely injuring a third.5
  • In 2012, a trucking company received a $281.6 million decision (later reduced to $105.2 million) after a drive shaft came loose from a truck and killed the driver of a passenger vehicle.
  • In 2021, two trucking companies received a landmark $1 billion decision in the death of an 18-year-old. The first truck driver flipped his semi-truck after driving beyond legal hours limits, using his cell phone and driving without the appropriate license. The accident led to standstill traffic on the highway. The 18-year-old was in stopped traffic when the second driver, who was traveling the speed limit on cruise control, slammed into the stopped traffic.

Nuclear verdicts are financially destabilizing across industries. Not only do they damage public perception of the trucking industry, but they also cause insurance premiums to spike, putting some smaller companies out of business. Additionally, they can make similar cases attractive to plaintiff's attorneys.

3. Technology as The Great Hope

Technology is making the transportation industry safer and giving insurers more evidence in the event of an incident.

Most large commercial trucking companies have forward-facing cameras on their vehicles. These cameras monitor driver compliance and capture accident footage. Camera systems for smaller fleets and companies are a financial hurdle, but still, the technology available is increasing on the road through monitoring lane departure, driver attention and accident footage.

Beyond cameras, new technology platforms have the potential to improve carrier efficiency and insurance by leveraging technology, including data analytics. Insurance carriers still have progress to make to realize the full potential of artificial intelligence (AI), however. Untapped technology has the potential to improve the accuracy of underwriting and the efficiency of claims management.

According to Mark Williams, executive vice president of the UW Work Comp Division at Atlas General Insurance Services, sound data analytics will set managing agents and niche players apart from the competition and attract the interest of strong carriers.

Beyond 2024, as AI gains a foothold, algorithm creation will become commoditized making the core functions of insurance more predictive, in McKinsey's view.6

In the long-term, as cars transition to more autonomous capabilities — perhaps semi-trucks included — liability is anticipated to shift to the commercial party associated with the autonomous vehicle.7

Learn more about what's next for the Transportation market in the RPS 2023 Transportation Market Outlook.

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Sources

1"Consumer Prices Up 4.0 Percent from May 2022 to May 2023," US Bureau of Labor Statistics, accessed 7 Nov 2023.

2Javanmardian, Kia et al. "Countering inflation: How US P&C insurers Can Build Resilience," McKinsey & Company, 25 Aug 2022.

3"The Impact of Rising Insurance Costs on the Trucking Industry," American Transportation Research Institute, Feb 2022. PDF file.

4"Corporate Verdicts Go Thermonuclear," Marathon Strategies, accessed 7 Nov 2023.

5"Transportation Law Blog," Baker Sterchi Cowden & Rice, 11 Jan 2022.

6Krishnakanthan, Krish et al. "How Top Tech Trends Will Transform Insurance," McKinsey & Company, 30 Sep 2021.

7Catlin, Tanguy et al. "Connected Revolution: The Future of US Auto Insurance," McKinsey & Company, 27 Oct 2023.