Insurance Market Still Tough as Jury Awards Keep Rising
This story appears in the June 12 print edition of Transport Topics.
Trucking companies continue to struggle with a tight, expensive insurance market — paying more for vehicle liability coverage or making due with less of it — while the underwriters that remain in trucking face narrowing or vanishing profits, suggesting the years-old problem will not be leaving anytime soon.
Fleet executives and property- casualty agents that work with them said the risk management landscape is a paradox of highway tractors equipped with amazing safety equipment that reduces accident rates and skyrocketing accident settlements and jury verdicts that can make any given accident financially treacherous.
Several underwriters want to minimize or eliminate exposure to trucking, and a pair of authors theorize that jurors often think like lizards.
“Underwriters don’t seem excited about writing new accounts. They have the capacity to do so, but they’re not eager to compete for new business,” said Tom Dickmeyer, CEO of Three Points Insurance Group, a brokerage and agency.
The market is especially tough for entrepreneurs trying to break into trucking.
“We find that obtaining coverage for these entrants to the market to be almost impossible to obtain due to the limited underwriting market wanting to write this business. Obviously, you can get coverage if you are willing to pay the price, which is very steep for these carriers,” said Brett McGinnis, executive vice president for transportation coverage of broker McGriff, Seibels & Williams.
Asked for her opinion on the biggest issue facing trucking, Lindsay Stevens Eggers, president of Stevens Worldwide Van Lines, said, “Insurance. More and more underwriters are exiting the market, which makes it more challenging and expensive.”
“How will the industry win, when every other commercial on TV is, ‘Have you been hit by a truck driver?’ Incredible,” she exclaimed.
Underwriter Baldwin & Lyons Inc., a major vendor to trucking as Protective Insurance Co., offered an example in its first quarter earnings report May 20.
The company’s combined ratio — incurred losses from paying claims and operating expenses, all divided by premiums collected — was barely better than break-even during the first quarter at 99.7%. In the 2016 first quarter it was 86.5%, B&L said.
“The combined ratio difference was mainly the result of unusually favorable loss experience during the first quarter of 2016 and unfavorable loss experience during the first quarter of 2017, due in part to a severe charter bus loss,” the report said.
According to The Wall Street Journal, insurance ratings firm A.M. Best Co. examined underwriters offering commercial- auto coverage — for all vehicles from cars to big rigs — and found that, on average, the combined ratios for this business have been above 100%, losing money, for every year from 2011 to 2016. For last year, the ratio was almost 112%.
Fleets and brokers agreed that if a trucking company is to survive in the long term, an obsession with safety is a necessity.
“We’ve had a good record. Drivers, dispatchers and mechanics all understand it’s their job,” said James Burg, president of James Burg Trucking Co.
Burg also is chairman of the American Trucking Associations Insurance Task Force and said that while he will not let down on his safety efforts, he would like to see a change in tort law — the lifting of the seat belt gag rule.
A significant portion of tort law includes the apportioning of responsibility when multiple parties are involved in an accident. Burg said some states will not allow defense attorneys to introduce evidence on whether the plaintiff was buckled in.
Burg said that drivers who don’t use seat belts should be held responsible.
“This is health and safety 101, the two basic rules are wear seat belts and don’t smoke cigarettes,” he said.
Executives at flatbed carrier Melton Truck Lines manage risk by using in-cab cameras that record what the driver sees.
“All 1,200 of our trucks have cameras,” Chief Financial Officer Robert Ragan said, adding that the company started using them five or six years ago.
The cameras are not just a theoretical protection.
“We use them all the time, every month or sometimes several times per month,” Ragan said, who noted payback was almost immediate.
“One of the very first videos of ours that I saw was when a car that was driving near one of our trucks had its hood fly up and smashes into us. She said our driver hit her and tried to sue us. These were outlandish lies,” he said.
Melton’s attorney showed the plaintiff and her lawyer the video and then sent them a bill for repairing the damage done by the car to the truck.
“That’s when I knew these things are good,” Ragan said.
As for jurors as lizards, Mike Natalizio, CEO of HNI Risk Services, said there is a notion among lawyers called the Reptile Theory that explains success at extracting large judgments from juries. An American Bar Association book review on the subject said:
“The strategy … is based on scaring the primitive part of jurors’ brains and utilizing — or manipulating, depending on your perspective — jurors’ fears. The theory posits that this gut reaction leads to a tendency to give damages based on a violation of a broader perception of safety.”
“Settlements and verdicts have escalated,” Natalizio said, and “the underwriters can’t get the premiums to cover them.”
Senior Features Writer Daniel P. Bearth contributed to this story.
