Fleets Should Expect Rising Premiums for Insurance Coverage, Experts Say

This story appears in the Nov. 5 print edition of Transport Topics.

Fleets should expect rising insurance premiums, especially for property/casualty and workers’ compensation lines, executives and insurance brokers said.

“Talk is out there that agents are telling carriers that the market is hardening,” said Ray Kuntz, CEO of Watkins & Shepard Trucking and chairman of American Trucking Associations’ Insurance Task Force. “The return on investment for insurance companies goes up and down, but now it’s pretty marginal. If those returns go negative or flat for an extended amount of time, then insurers have to make up for it in other ways.”

The exit of one major underwriter in October also has affected the overall market.

“There’s a firming of the market now. We’re seeing increases of 5% or more on premium rates across the board, year-over-year, on auto liability if you’re doing ‘OK’ on your losses,” said Ronald Inberg, executive vice president of insurance broker McGriff, Seibels & Williams. “It could be 15% to 20% if you’re not ‘OK’ on claims. For workers’ comp it’s more like 8%,” said Inberg, who specializes in trucking coverage.

Two recent reports from insurance rating service A.M. Best Co. said underwriters are boosting premium rates to correct poor results from property/casualty coverage, in part because of low investment returns. The Federal Reserve is well into a lengthy policy of keeping interest rates low, which is beneficial for borrowers who pay interest but problematic for collectors of interest.

“Growth in net investment income has slowed in recent years, driven by a number of factors, including a decline in net investment yield that reflects the persistently low interest rate environment and lack of growth in nonaffiliated invested assets, from which most investment income is derived,” the Best report said.

“To the extent that continuing weakness in investment markets results in lower investment income, only improved underwriting results will be available to maintain growth in earnings,” the report concluded.

Historically, insurance companies have used investment profits to subsidize premium rates.

“2007 and early 2008 were the last of the strong markets for investment returns for insurance companies,” said Ken Crippen,CEO of the American Trucking & Transportation Insurance Co., a captive insurance company owned by five trucking companies, including Kuntz’s.

Crippen said investment income returns often topped 5% a year for insurance carriers and sometimes approached 10%.

McGriff’s Inberg said businesses needing insurance are not faced, for now, with underwriters shutting down en masse because insurers are generally flush with capital, and they have to use that money to underwrite risks, but they want to do it more profitably.

“There’s still a lot of capacity out there chasing premium payments,” he said.

Beyond the general nature of the insurance industry, Crippen said, trucking has some specific issues of its own, especially jury verdicts related to accidents.

“There have been some incredible verdicts in trucking, even though the majority of the U.S. is doing better. One million dollars gets shot around today as if it were nothing. The amount of total claims paid goes up even as accident trends continue to drop,” Crippen said.

Meanwhile, during October, CNA Financial Corp. decided to back out of the trucking market.

“We have thoughtfully examined our current book of business and have made the decision to discontinue pursuing transportation business. Our experience in the transportation segment of our business has not been at adequate levels to help us deliver on our strategy, and our outlook for this market reflects limited opportunity in the foreseeable future,” said Jennifer Martinez-Roth, a spokeswoman for CNA Financial.

“Effective immediately, we will no longer accept new business within this unit. We will continue to support our clients with nationwide claim and risk-control capabilities through the end of their policy term,” she said.

Inberg said CNA had been a good provider for midsize fleets and the underwriter’s withdrawal will probably make it easier for remaining companies to increase prices.

Kuntz, the 2007-2008 chairman of ATA, said trucking does have some options for promoting the industry to underwriters. In recent years, ATA officers have made presentations to reinsurance companies in New York and London, describing advances in safety technology such as lane-departure warning and roll-stability systems and speed governors.

“Hopefully, this won’t become as hard of a market for trucking this time because of that work. Keeping insurance affordable is a part of ATA leadership’s role,” Kuntz said.

Another tactic is being played out by attorneys who often defend trucking companies, Kuntz said.

Kuntz said he would like to see some standards for liability and workers’ compensation claims and where they are filed, rather than allowing employees to shop for the states that are traditionally most generous.