Insurance Premiums Fall 10% to 50% as New Firms Enter Market

This story appears in the July 14 print edition of Transport Topics.

A wave of new insurance companies vying for business from the trucking industry has created an unusual — and welcome — situation: Rates are dropping.

Over the past 18 months, said officials of several insurance companies, premiums have fallen from 10% to 50%, as the new insurers help drive down rates from all competitors.

The result has been a cut of the average premium for a longhaul fleet truck from $4,000 to $3,000, one insurer said.

“The market has been going south on us, going soft, for the last year or more, primarily driven by the excess reinsurance capital that’s available,” Jack de la Cova, chief executive officer of Insurance Network Specialties Inc., Plantation, Fla., told Transport Topics.

The company focuses on trucking.

“People are looking for places to park their money, and they’re putting it into the reinsurance market, which has drawn more people into trucking insurance because the premiums can be high” compared with other niches, de la Cova said.

Officials of all of the companies interviewed, specialists in trucking insurance, said that the price cycle has played out periodically every six to eight years, the last time in 2001-02. After rates fell then, most newcomers eventually left the market, and prices rapidly climbed back to their old levels, they said.

This time, “the setup really started in 2006 and continued into 2007, which were specifically very plush years for the overall insurance industry,” said Ed Campbell, chairman of 1st Guard Corp., Venice, Fla. “Their capital base built up rapidly because no catastrophic events, such as hurricanes, hit the country, and truck insurance was one of the new places many decided to put their money.”

Campbell and other truck insurance executives compared their industry’s current problems with those faced by trucking after the huge 2006 pre-buy and subsequent weakness in freight volume.

“Our situation now is similar to the trucking industry when it added too many vehicles,” Campbell said. “You have an increasing share of insurers chasing a de-creasing share of truckers, and the way to get business is to offer lower premiums.”

1st Guard Corp., a direct-writing insurance company aimed at owner-operators, has about 15,000 clients, according to the company’s Web site.

Campbell said he estimated that the truck underwriter market has increased by 10% to 15% in recent years, with premiums falling by about the same percentage.

Scott Wollney, chief executive officer of Lincoln General Insurance Co., York, Pa., has a more drastic view.

“In the last three years, on average, premium rates have come down as much as 30% to 40%, and you could probably find examples where premiums are half that, or even less than half, of premiums three years ago.”

Wollney said that capital rolled into trucking insurance because the U.S. market alone draws in about $100 billion a year in total premiums, while individual contracts could be worth between $2 million and $6 million a year in premiums.

De la Cova said, “It’s a safe bet to say premiums have fallen at least 20% in the Southeast.”

“The fleets with good records are getting very good rates, but even the guy with a bad record can find insurance for a good price,” de la Cova said.

“I think insurance rates are pretty far down on the complaint list now for fleets,” James Danbrowney, senior vice president of Hudson Insurance Group, New York City, told TT. “Fleets get cheaper premiums now because brokers can buy cheaper reinsurance directly tied to the fact that there’s a lot of capital out there.”

Not all fleets agreed that rates are diving.

“What we’re seeing is an exponential rise in the cost of settling each accident,” Don Osterberg, vice president of safety and driver training at Schneider National Inc., Green Bay, Wis., told TT. “The cost of the same accident five years ago was much less than today, so that you have to continually increase your safety record just to stay equal in insurance premiums.”

Lincoln General’s Wollney said he is seeing the same type of mistakes that occurred in 2001-02, which Danbrowney said also happened in the 1980s and 1990s.

“Experienced truck insurance companies understand that each fleet has a range of risk characteristics and that they vary significantly from company to company,” Wollney said.

“Fleets may pay an appropriately substantial premium per power unit if they have safety issues, while companies with a proven record of safety would obtain a rate that is half of that,” he added.

Wollney said the new entries “come in and offer an across-the-board rate in the lower range, not distinguishing between the different risk factors in fleets, and they can get into trouble that way.”

He also said that new competitors might not understand the turbulence among some trucking fleets. “Desperate owners are more likely to do desperate things. Financially challenged trucking companies may be willing to misrepresent the facts on their policy applications, or they may start breaking rules to increase revenue such as encouraging drivers to work more hours than are legally allowed.”

Dale Douglas, vice president and general counsel for Motor Transport Underwriters Inc., Indianapolis, said, like Wollney, that his firm is prepared to lose customers rather than decrease premiums below underwriting levels.

“We try to give fair pricing to keep our partners with us, but we’re not getting a lot of new business these days because of the new entries,” Douglas told TT. “We have lost a few customers in this low-premium market, but we’ve kept the ones we’ve retained for an average of five years.”

“The new competition doesn’t always lead fleets to pay lower premiums,” Douglas said. “Some make the decision to spend the same amount with the lower-price insurers but drastically bring down the self-insurance, or deductibles, that they carry. That is, instead of paying themselves for every accident that costs $100,000 or $200,000 or less, they’ll lower the deductible down to $50,000.”

As did the other executives in specialized firms, Douglas expressed confidence in the future.

“The new people coming into the market don’t specialize in trucking insurance like we do. That’s all we do,” Douglas said. “We just do trucks, and we consider our customers our partners. We’re not the only company that feels this way. It’ll take a couple of years before the excess capacity is taken out of the market.”

Steve Johnson, president of Marvin Johnson & Associates, Columbus, Ind., said he saw the same trends from his perspective as an agent or broker.

“I’d say that premiums are down from 10% to 25% — in some cases, 40%,” Johnson told TT. “We go through this cycle regularly.”

“Back on ’05 or ’06, there were really only 11 or 12 real truck insurance market makers, and now we have about 25,” Johnson said. “Back in ’06, I’d say the average premium for a longhaul truck was about $4,000 a year, and it’s come down in just one year to $3,000.”

De la Cova said rates were higher in the Southeast.

“In Florida, it’s always notorious that truckers pay a higher rate than anyone else in the United States, because litigation is pretty tough to defend,” de la Cova said. “So, over-the-road fleets are paying $5,000 per unit in Georgia and $6,000 in Florida.”

The executives said it took the new companies three or four years to build a client base, but only one or two years to leave.

“It takes two or three years for a truck insurance company to find out if it’s made any money, because that’s how long the courts take to settle cases,” Johnson said. “In the next two years, we’ll see companies either raising premiums or going out of business if they can’t.”

“Trucking firms will find themselves paying $4,000 a truck again in premiums quickly,” he said.