Fleets Trade More Risk for Lower Premiums

ike many companies facing steep increases in insurance premiums following the 9/11 terrorist attacks, executives at Covenant Transport decided to raise the company’s deductibles and retain more of the risk for claims resulting from on-the-job injuries and motor vehicle crashes.

The longhaul truckload carrier raised the threshold for self-insurance on workers’ compensation policies from $5,000 to $1 million and on casualty policies from $250,000 to $2 million per claim.

The move kept insurance premiums down, but also shifted a major share of the risk from the insurer to the carrier, a point driven home when Covenant was forced to take a charge of $19.6 million in the 2004 fourth quarter because it had underestimated the reserves needed to cover the cost of claims. As a result of the adjustment, Covenant reported a net loss of $6.5 million in that quarter and slashed its 2004 earnings by 72.2% in what was one of the strongest freight-hauling years in recent memory.