FMCSA to Raise Minimum Levels for Carriers’ Required Insurance

This story appears in the April 28 print edition of Transport Topics.

The Federal Motor Carrier Safety Administration said it plans to raise the required $750,000 insurance minimum for interstate motor carriers because the amount is not adequate to cover the cost of some serious crashes.

“A variety of recent studies indicate that inflation has greatly increased medical claims costs and related expenses,” FMCSA said in a report mandated by Congress. “In conclusion, FMCSA has determined that the current financial responsibility minimums are due for re-evaluation.”

The agency, which released the insurance report April 18, said it has appointed a special rulemaking team to determine the “appropriate level of financial responsibility” and that a new mandate for minimum cost will be “among the agency’s high-priority rules.”

FMCSA cited multiple other studies, but said one January 2013 review by the Volpe Transportation Systems Center provided its primary evidence of the need to increase the current minimum insurance levels.

The increased minimums also could apply to hazmat motor carriers, which already carry higher minimums than general freight carriers.

The rates have remained the same since 1985, despite legislative attempts as recent as last year to raise the minimums. For most interstate carriers, the minimum financial responsibility level is $750,000, but hazardous materials carriers must meet financial minimums of either $1 million or $5 million, depending on what they are hauling.

For example, fleets carrying “any material, oil, substance or waste” require a minimum of $1 million, while those carrying all other hazardous materials require $5 million,” FMCSA said.

Efforts to include a provision to raise the minimums in the 2012 highway funding law ,known as MAP-21, failed. At the time, American Trucking Associations opposed those attempts, but the federation is expected to reconsider its position at the organization’s leadership meeting May 18-21, said Prasad Sharma, ATA’s senior vice president and general counsel.

“At the time, we opposed those provisions because we did not believe the data justified an increase in the current minimums,” Sharma said. “But in light of the FMCSA and Volpe study, we’re going to reexamine whether the situation has changed.”

Rep. Matt Cartwright (D-Pa.) last year introduced legislation that would raise the minimum insurance requirement to $4.4 million. However, it failed to clear the House Subcommittee on Highways and Transit.

FMCSA said the increases in minimum liability insurance are intended to “assure that public safety is not jeopardized” and to ease concerns that safe operators will not cut costs to meet the prices of their competitors.

Michael Card, president of Combined Transport Inc. in Central Point, Ore., and chairman of ATA’s executive committee, said he favors raising the minimum. His company, which does not haul hazmat, currently carries $5 million in insurance.

“I don’t believe $750,000 is enough,” said Card, who previously headed ATA’s insurance task force. “So my personal feeling is that it’s probably time to raise the minimum.”

The Owner-Operator Independent Drivers Association, however, contends that an increase in insurance would be a death knell for the small businesses.

“The amount of insurance carried by motor carriers has never been shown to have a correlation with safety,” said Todd Spencer, executive vice president at OOIDA.

Michael Barry, a spokesman for the Insurance Information Institute, said that the FMCSA report offers a foundation for federal lawmakers to review the minimum.

“Given that it has been nearly 30 years since the current minimum responsibility levels for motor carriers went into effect, and legal, medical and property claims costs have risen dramatically over that time, Congress may want to revisit this issue,” Barry said.

Mike Natalizio, CEO of HNI Risk Services, said he would favor raising the minimum limit if it would help cover the cost of serious crashes. More than 65% of HNI’s clients are motor carriers.

“My concern with an increase in the requirement lies in the probability of raising the value of all claims simply because the pockets become deeper,” said Natalizio. “I would favor an increase of doubling the minimum to $1.5 million to

$2 million only if we could get some type of reform to allow this coverage only to those deserving.”

FMCSA said the Volpe study revealed that severe crashes, although relatively rare, yield damages of more than $1 million. It also said insurance rates for the same level of minimum coverage have declined slightly, “hovering around $5,000 per power unit.”

Other studies referenced in FMCSA’s report were conducted by the Pacific Institute for Research and Evaluation and the Alliance for Driver Safety and Security Inc.