CSA to Affect Insurance Rates, but Direction Remains Unclear

This story appears in the Jan. 24 print edition of Transport Topics.

What will happen to the cost of insurance for fleets following implementation of the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program? The answer: It depends.

Insurance underwriters are likely to take CSA scores into account in providing coverage and setting rates, but the full effect of the new safety enforcement regimen on the cost of insurance for freight carriers, brokers and shippers remains to be seen, according to experts.

“Driver scores will become part of the underwriting process,” said Tommy Hodges, chairman of Titan Transfer in Shelbyville, Tenn., and a former chairman of American Trucking Associations.

Hodges said CSA data give insurers another tool to identify carriers that pose a greater risk of accidents and will “price accordingly.”

Ed Campbell, chairman of First Guard Insurance Co., Venice, Fla., a company that insures about 13,000 independent truck owner-operators, said CSA data offers insurers a “fuller picture” of drivers’ performance and will be used to supplement other data sources, such as motor vehicle records, to weed out drivers who are “marginal” or “less-safe.”

“If CSA plays out as designed, it ultimately should yield a lower accident rate and . . . lower [insurance] rates,” he said.

Some trucking industry officials urge caution in using CSA data.

“We would be concerned if insurers take CSA scores at face value as a measurement of safety performance,” said Rob Abbott, vice president of safety policy for ATA. “CSA scores are not intended to be safety ratings. This is especially important for insurers to know since FMCSA’s preliminary analysis reflects that — in at least two [of seven Behavior Analysis and Safety Improvement Categories] — high BASIC scores are a poor predictor of crash risk.”

The release of inaccurate data also could trigger lawsuits, said Jim Voorhees, president of Instructional Technologies Inc., Vancouver, Wash., a company that sells training programs to motor carriers and truck drivers.

“The system is imperfect. If that data is wrong and you lose a customer, that’s a problem,” he said.

Despite those concerns, many trucking industry officials and legal experts say they expect CSA scores to become a key measure of carrier-safety performance and Exhibit A for attorneys looking for evidence of fault in crashes involving commercial trucks.

The public release of CSA data on Dec. 12, in fact, gives media, attorneys, shippers and brokers “no choice but to act on it,” said Steve Bryan, chief executive officer of Vigillo LLC, Portland, Ore., a company that analyzes and tracks CSA data for carriers and shippers.

CSA “is defining the safety profile [of carriers], whether or not that was the purpose,” Bryan said. “It will be abused. It will be used for purposes not intended and it will happen very quickly.”

A number of major truck insurance underwriters and brokers have signed up to use Vigillo’s analysis of CSA data to help carriers implement safety improvement programs.

The data analysis “is a way to assist [policyholders], not a way to gain business revenue,” said David Mitchell, director of risk control and safety for Aon Risk Services, Chicago.

Other insurance firms partnering with Vigillo include: Great West Casualty Co., HNI Truck Group, Impact Transportation Solutions, Cottingham & Butler Truck Insurance Group, TrueNorth Cos., Cline Wood Agency, and Gallagher Specialty Risk.

Annette Sandberg, a former FMCSA administrator who works as a transportation safety consultant, said she expects courts and juries to hold all of the parties involved in arranging the movement of freight — shippers, carriers and brokerage firms — responsible for exercising a “degree of caution” and “attention to possible dangers” by constantly monitoring the safety performance of motor carriers.

Doug Hathaway, vice president of Maxum Specialty Insurance Group, Atlanta, said he sees CSA scores as part of a shift from rates based on loss history to “more predictive data.”

“If a carrier has bad loss experience and high [bad] scores, we would look at that as something that, in the future, is not getting any better. But a carrier in the same situation in terms of loss experience with good scores, we think, has better prospects.

“It certainly adds a level of complexity to what’s happening,” Hathaway said. “It will make good accounts better and bad accounts worse. For accounts in the middle, there are pluses and minuses.”

Dan Murray, vice president of research for the American Transportation Research Institute, said new CSA research has identified several insurance companies that are “on the cusp” of offering premium discounts based on CSA scores.

At the same time, Murray said the potential for using CSA data in litigation could result in a push to increase the liability insurance requirements for freight carriers.

General freight carriers must carry a minimum of $750,000 coverage, with higher amounts for carriers of hazardous materials.

Murray said the move to raise insurance limits could make insurance more expensive.

“Smaller carriers may be somewhat pressed to pay for the higher coverage,” he said.

Hodges of Titan Transfer said he expects insurance companies to require carriers to submit CSA scores, along with other pertinent data — such as mileage, range of operations and type of commodities hauled — as part of the underwriting process and he expects carriers with CSA scores “above the norm” to pay more for insurance.

“That happens today,” Hodges said. “If I am a higher risk, I pay higher rates.”

Hodges said his company has been part of a captive insurance program for the past 12 years. In a captive program, members are assessed premiums based on the amount of money needed to pay claims each year.

In the commercial truck insurance market, rates fluctuate based on exposure and loss experience, but rates also can be affected by returns on investments by insurance companies.

“In a bad year, you pay more,” Hodges said. “The market takes care of itself. CSA data is just another tool to use to evaluate risk.”

At C.R. England Inc., a refrigerated trucking and intermodal carrier based in Salt Lake City, officials are looking at CSA data to evaluate drivers and to minimize risk in selecting carriers to haul freight for the company’s England Logistics subsidiary.

“We have made several changes to our hiring criteria in preparation for CSA, but as the process evolves we expect that more will be necessary,” said Thom Pronk, corporate vice president for recruiting, training and safe driving. “Currently we are in the process of identifying acceptable exposure levels for both hiring and retention.”

Wayne Cederholm, chief operating officer for C.R. England, said the company will use “any reliable source of information” in its carrier selection process.

“We anticipate that CSA Basics will offer further insight and intend to incorporate it as an additional source, although we’ve yet to decide how it will be used or what weight we will put on it,” he said.

Tommy Ruke, president of Insurance Business Consultants in Fort Myers, Fla., described a scenario in which CSA data could trigger policy cancellations.

Normally an insurer cannot cancel a policy after 60 days except for non-payment or material change in exposure. SCA safety scores could qualify as a material change in exposure, according to Ruke in a recent article in Property & Casualty magazine.

“What I’m telling retail agents,” Ruke said, “is if they’re serious about writing trucking, they need to be prepared to go in monthly to check if their insureds have had an intervention. And if they have, find out what it was for and what they’re doing to correct it.”

Rob Moseley, trucking attorney with Smith Moore Leatherwood LLC in Greenville, S.C., said mid-term cancellations are a possibility, but unlikely.

“Insurance carriers could have done something similar in the past but did not,” he said. “Even now, motor carriers are rated ‘conditional’ and their policies are not cancelled.”

To help shippers and brokerage firms manage safety risks, Jeff Tucker, chief executive officer of Tucker Consulting in Cherry Hill, N.J., launched a website called QualifiedCarriers.com that tracks safety data on carriers, manages critical documents like insurance certificates, hazardous material permits and carrier contracts and provides a secure messaging system to communicate with carriers and to enforce contract terms.

“We have been screening carriers since 1961,” Tucker said. “We keep ourselves and our clients ahead of the curve with respect to safety and compliance, and the ever-shifting legal, regulatory and insurance climate.”

The push by carriers and insurers to closely track CSA data has limitations, according to some safety experts.

David Saunders, chief executive officer of Compliance Safety Systems in Midlothian, Texas, said scorecards “may be to the benefit of a fleet that is able to sustain the financial requirements of maintaining equipment, but that alone will not ensure that the business survives a lawsuit or that a third party conducting business with that company could not be named in that same lawsuit.”

“The real question to be asked is: ‘Which program and what standard will be accepted by the public and the enforcement community?”

Saunders said he advises fleets to concentrate on driver training and maintenance to achieve the best possible CSA scores.

“Fix the truck, you fix the score,” he said. “Or else your business will not survive and the public will not be won over.”

Another issue not addressed by CSA is the way new entrants are assessed by federal authorities.

Jean Gardner, chief executive officer of Central Analysis Bureau in New York, said her firm has developed software for insurers that cross checks names, addresses and phone numbers with DOT numbers. This process helps to detect “chameleon” operators who change their name or location to hide poor safety scores.