Each year I try to pass on my thoughts as it relates to insurance and, more importantly, how it affects the truck and transportation industry. Keep in mind that I do not control or effect insurance premiums. I sell insurance, specializing in truck and transportation. I am the last rung on the ladder before the product is sold or dispensed to the end user. Most of our clientele is made up of single truck owner operators. The fleets that we have are small, and the rates are generally consistent with those of the owner operator.
Several factors influence rates but, for the most part, insurance companies gage their portfolios by performance. Performance can be defined as a ratio of expense, loss expense and reserves to its income and investment revenue. Through the years, investment income has diminished and their portfolios or books of business have to stand more on their generated premium. This is the general model used in evaluating the business that an insurance company uses in each line of business that it writes.
One thing to keep in mind regarding insurance companies – just because they are an “insurance company” does not mean they write all aspects of coverage. Many insurance companies only specialize in certain areas of the business. The majority of these companies providing coverage for the trucker may only write those lines of insurance that are associated with the industry, or a few specific segments of the industry. This is their appetite for the business, and what they feel comfortable with or have simply decided to specialize in.
As I mentioned before, I am on the bottom rung of the insurance ladder. The majority of insurance that provides coverage for the trucking industry and, more importantly, you the owner operator, passes through several hands before you make the purchase from the agent or broker that you have decided to work with. The majority of the insurance companies that provide specialty insurance programs, such as products for the trucking industry, distribute their products through a network of wholesalers. These are the “general agents” that bring their programs to the “retail agents” (like me). The decision to provide coverage for a client or prospective client lies in several layers of review, and the ultimate decision is made by the company itself, not the agent. The reason that I am sharing this process with you is to explain that the agent or broker that you are working with does not have the authority to consider the risk or make underwriting decisions.
I started last year with the prediction that rates would increase 10%. Rates have increased but, in many situations, rates have increased over 20%. Through the depressed years of 2008 through 2013, rates were stable, but as soon as the nation’s economy improved, rates started to increase. Business has returned – truckers that went out of business during the depressed years are coming back to include an influx of new owner operators vying for the nation’s increased flow of goods. I do not think that it takes a genius to come to the conclusion that the insurance industry is taking advantage of our nation’s economic improvement!
Underwriting will continue to tighten. Your driving record (MVR), as well as your loss history, will play a major part in the renewal process. For the majority of you that have satisfactory MVRs and are loss free, rates will probably increase a modest 5% to 10%. For those of you that have received a non-renewal letter, or those of you that expect to receive a non-renewal letter, you will have a heart-stopping shock waiting for you when you receive your renewal premium through those companies that will still consider you as a risk. If you are new to the industry, be prepared and understand what costs that you will be subjected to before you make the commitment of purchasing your equipment.
If you are planning to start a new venture this year, it is very helpful and advantageous to have some experience. It is best if you have at least 2 to 3 years of driving experience and are over the age of 25. The majority of the insurance industry does not want to write new long haul business right now, so it might be difficult to find coverage. You will have a better chance of obtaining insurance if you keep your operations within a 500-mile radius. If you have no experience, and you just got your license (CDL), my recommendation is to go to work for an established line carrier that will hire and train you. Get your experience before you commit to becoming an owner operator.
Premiums will be all over the place in 2016. Since many of you have purchased new or newer equipment to satisfy the clean air regulations, the increase in insurance premium was eye-opening. As the industry continues to increase rates, you will have to be more diligent in shopping for competitive rates. The big and unfair blow to the trucking industry is that rates will continue to increase, as long as the economy continues to improve (or at least remain steady). If you have any glitch in your insurance, be prepared to shop your renewal. For some of you, not only will the premiums be staggering, but the underwriting requirements will also be tougher.
When you are shopping for your truck insurance, whether you are an existing owner operator or if you are new to the business, information is important. Have all of your information gathered together before you even start the shopping process. You must have at least three years of your previous insurance history, which includes the company names (not your previous broker) and policy numbers. You will also be asked for “Loss Runs” so now is the time to start asking your agent for them. This has become a common practice these days, and many companies will not even provide you with a quote without these documents. You should always maintain your past Loss Runs with the rest of your insurance records.
So, there are my predictions and prognostications for the coming year. In a nutshell, premiums will continue to increase, and underwriting will continue to tighten throughout 2016. If you have any comments or questions, or want or need any additional information, I can be reached through California Plus Insurance Service in Modesto, California at (800) 699-7101.