Safety Tech, Cameras Can Help Fleets Prevent Claims, Insurance Brokers Say
This story appears in the Sept. 26 print edition of Transport Topics.
Fleets that invest in safety technologies — from onboard cameras and telematics to active safety systems — are likely to see their investments pay off by helping to reduce or eliminate catastrophic risks and costly claims, insurance brokers and other experts said.
They stressed the importance of these technologies as the trucking industry grapples with a litigious environment and the withdrawal of some insurers from the trucking market over the past year.
Cameras, collision mitigation and avoidance, and lane departure warning systems are attracting a lot of interest from the insurance industry, said Todd Reiser, vice president of the transportation practice at Lockton Cos., an insurance broker.
If a carrier implements such technology and determines that it enabled the company to avoid a catastrophic rear-end collision that could potentially cost $20 million, “that investment is already sound,” Reiser said.
Earlier this year, Zurich Global Corp. confirmed to Transport Topics that it pulled out of the trucking insurance market due to poor profitability. Lexington Insurance Co., a subsidiary of American International Group, also earlier this year said it would no longer provide excess auto liability coverage for the trucking industry on an excess and surplus basis.
While primary liability insurance premiums in trucking have remained stable, excess liability is where “the double-digit increases are occurring,” said Keith Klingenberg, managing director and principal at insurance broker TrueNorth Cos.
The maximum amount of coverage that a primary liability policy covers before excess coverage kicks in is $5 million, and it varies downward, Reiser said. Some fleets, including many smaller fleets, are buying a primary policy with minimum limits, either $750,000 or $1 million, he said. Large fleets generally are buying a primary policy that offers higher limits, usually up to $5 million.
Regardless of size, the key issue is reducing costs, said Craig Dancer, transportation industry practice leader at insurance broker Marsh USA Inc. That comes with having a safer operation, “because if you don’t have claims, your insurance costs come down.”
Rick Wittmann, vice president of transportation at Sentry Insurance, a primary insurer offering truck liability, among other coverages, noted there has been a reduction of truck-related fatalities. But the number of injuries is rising and jury awards are increasing, so loss severity continues to increase, Wittmann said. In some cases, that’s due to “high-powered attorneys” who have increased their focus on transportation cases, targeting large motor carriers with “very deep pockets and winning some very big awards for their clients involved in accidents with trucks.”
Jury verdicts that used to be $2 million are now potentially $10 million, Wittmann said.
Reiser said that both primary liability underwriters and excess liability underwriters understand that safety technologies will have a major effect to help reduce catastrophic losses, noting underwriters are “under a ton of pressure” to be profitable.
Some insurers have established a “prerequisite,” Dancer said. This means they will entertain a risk only if that risk uses a particular technology, such as collision avoidance, electronic logging devices or camera systems, Dancer said, noting this has been more risk-specific than “a carte blanche approach.”
In another year, it’s likely that all insurers will require ELDs due to FMCSA’s mandate of the devices by December 2017, Dancer said.
Several factors will remain important to insurance companies in determining good risks from poor ones for them to enhance risk selection and pricing, said David Blades, senior industry research analyst in the credit rating criteria, research and analytics department at A.M. Best, an insurance rating agency. These include effectively assessing the risks associated with individual drivers, which is imperative “as driver error has emerged as a main cause of rising loss severity.”
Klingenberg dubs two-way cameras as “the biggest breakthrough” for fleets. Lytx Inc. and SmartDrive Systems are among the trucking industry’s largest suppliers. Statistically, the AAA Foundation said that more than 75% of crashes involving Class 8 trucks are not the fault of the truck drivers, Klingenberg said.
Overall for the industry, cameras “could help us litigate against cause,” said Sherri Garner Brumbaugh, CEO of Garner Trucking, a truckload fleet in northwest Ohio, and vice chairman at American Trucking Associations. She has not been in the “open” insurance market since 2001 because, she said, she’s essentially been her own insurance company through a captive since then. In a captive, members surround themselves with peers who believe that “safety and a culture of safety is important,” she said.
In addition to potentially exonerating a fleet from liability, cameras can help to monitor and improve driver behavior, Reiser said. “When drivers know a camera is in the cab, they know whatever they do could potentially be reviewed.”
Wittmann said it’s becoming more common for insurers to offer some type of subsidy for cameras through partnerships with telematics firms.
For example, Sentry teamed up with Lytx DriveCam to offer a subsidy and has negotiated discounted pricing on the monthly subscription cost to its customers if they install the cameras in the cabs of their trucks, said Randy Ramczyk, director of underwriting for transportation at Sentry.
“We help our insureds get started in the program with reduced costs because we see value in the driver coaching and safety improvement it provides,” Ramczyk said.
Rather than providing discounts for using a specific technology, some insurers are subsidizing or paying for the hardware to install in the vehicles, Dancer said, referring to camera systems as an example.
“The insurer is betting that their investment in safety technology will be paid back over time based on their insured’s improved loss experience,” Dancer said.
Some are skeptical — at least when it comes to fleets being able to significantly reduce their premiums with safety technologies. Many of the technologies that motor carriers are adopting have a safety aspect, said Bob Pitcher, vice president of state laws at American Trucking Associations. But many of them are so new that their record in actually improving motor carrier safety may be too slim to lower premiums significantly at this point, Pitcher said.
If properly implemented, these technologies will improve a motor carrier’s safety, but “the insurers don’t know it yet for sure,” Pitcher said, noting that’s because premiums are based on historical claims and actuarial claims data.
“Technology that may promise to pay off in the future is, to an insurer’s point of view, unproven until it’s proven by reduced claims,” Pitcher said. For most of these technologies, “we’re not there yet.”
Insurance underwriters are keen in wanting to understand the type of telematics a fleet is using, such as the record of critical events, Dancer said.
“Even though you don’t have accidents, if you have a lot of critical events, those are indications of unsafe driving,” Dancer said. A critical event record is generally integrated with a telematics device that can measure speed, hard braking and lane departures, among other factors, he said.
Summing up, Klingenberg said commercial auto liability, and workers’ compensation, are about 80% of a fleets’ insurance spending. Drivers are fleets’ No. 1 expense, then fuel, and insurance comes in at No. 3, he said.
“I am shocked at how many unsophisticated buyers there are on their third-largest expense,” Klingenberg said.
