Congratulations to 10-4 Magazine (Erik, Jean, Dan and Shannon) for putting the time and effort into what has become the trucking industries’ most sought after publication. “Memory Lane” has many varied parts to it – some good, some not so good – and then there are those that shake the very support out from under us. After being in the truck insurance business for more than 34 years, the one constant has been my relationship with 10-4. I can remember clearly my first meeting with Erik, at my San Diego office, in 1996.
Erik was (and still is) a very dynamic force to be reckoned with – he is that one individual that you cannot say “no” to. I had no thought of ever writing one article, let alone writing over 100, especially on one of the planet’s most boring subjects – insurance. I did miss one deadline two years ago when I had a stroke, but other than that, I don’t believe that I ever missed another one. Now, how much can one write about insurance when that part of the insurance spectrum involves, for the most part, owner operators, to which there are really only three basic parts (Liability, Physical Damage and Cargo)? I added two additional topics, General Liability and Workers Compensation, into the mix from time to time, and can honestly say that I never used anything that I had ever written previously. The subject might have been the same, but the words were always original to the article that I was working on.
When I started writing insurance in 1979, the liability premium was around $800. Today, the rates start around $4,500 and, for the most part, average over $5,000. Even at that time the market was unstable, with continually rising and fluctuating rates. When liability rates reached $2,300 I thought that the whole damn thing was going to fall apart. Rates continued to rise and the trucking industry just paid for it. During those early years, I soon found out that the insurance industry reacted to bad news just like many of us do – with a major overreaction to the circumstance.
You would think that the insurance industry is a wise business with all of its high-priced management and rooms full of actuaries. They should know everything. After Proposition 103 was passed in California in 1988, the insurance industry changed dramatically. Those companies that wrote truck business were calling us for a read on its impact. They knew that it was coming years in advance, but had no clue what the fallout would be when it was actually enacted (I have been to major product unveilings, only to have the programs pulled before I ever even got back to the office). Regional offices were closed and consolidated into multi-state centers, and guess what – we are seeing this all over again today. Like I have always said, the insurance industry runs in cycles, and that is what is happening now.
Change also affected my business. In June of 1998 I moved our office north to Modesto, CA. You have to ask yourself, why would anyone move from San Diego to the Central Valley? Well, it was a decision my family made for me! My family had farmed in the area for many years, and since I was now in the Central Valley and 10-4 was expanding from a Southern California publication to over 30,000 issues statewide (and beyond), Erik persuaded (let’s call it pressured) me into setting up a distribution route for the magazine from Bakersfield to Sacramento. Once a month, this entailed driving about 1,000 miles in a day and a half and delivering thousands of magazines to the various truck stops, parts houses and scales where we had racks. It was a lot of work. In October 2000, I relinquished this route to a driver (Jonathan) who still does it today.
The insurance industry talks about market swings, which they call hard or soft – we are currently coming off of a “soft market” that gave us competitive and stable rates. We are just getting over one of this nation’s largest economic downturns, and the trucking industry is finally picking up (more people are becoming employed in all industries). It seems like the truck insurance industry got together about 60 days ago and made a major decision to increase insurance rates. Just a few short months ago I predicated that rates would go up 10%, but that prediction will not hold up. It looks like rates will be going up 10% to 40%! If I write 100 more articles, markets will come and go, but change in premium will always be the topic of discussion that people care about the most.
Here is one bit of information that you might want to know. The Federal Motor Carrier Safety Administration (FMCSA) has just increased the broker bond requirements from $10,000 to $75,000 effective October 1, 2013. This is a significant change in the bond requirement as it relates to the trucking industry. Not only does the premium increase but the underwriting will become more stringent and the bond will now be harder to get. Basically, this bond is similar to a letter of credit and it will pay those obligations required by you, the broker, to those truckers that you broker loads to if they are not paid. The typical rate for a bond is 5%. If you are getting a preferred rate the premium would be $500. Now, if you can qualify for the bond, the premium will be $3,750. But that is only part of the problem.
This bond was never a popular product with bonding companies. Since this change, many of the companies that have written this bond in the past will cease writing it all together. For those remaining
companies that will still consider this bond, underwriting will be dependent on strong financial statements and balance sheets. I write a large number of bonds with CNA and they have advised us that they may require collateral in the form of a Certificate of Deposit (in their name) to consider staying on or writing a new bond.
At issue is what this bond represents as a liability to the bonding company. The bond amount is not the limit of potential loss – since this bond can cover multiple demands, it can be much more. Bond companies are not supposed to lose money. We will just have to wait and see what happens with this one. If you have any questions or comments, I can be contacted through California Plus Insurance in Modesto, CA at (800) 699-7101. Happy anniversary to everyone at 10-4 – here’s to 20 more years of “The Best of the Best!”