Cutting insurance costs is really pretty simple - don't have accidents, take on higher deductibles, and assume more risks,” says Chuck Dicker, an agent for Dallas-based Mondics Insurance Group. “Obviously,” he adds, “no one can do all of that.”
The stark reality of high truck insurance costs, however, are forcing many fleets — but especially smaller operators — to look for new ways to reduce their premiums. The sad fact is, though, that the high cost of insurance isn't necessarily related to safety concerns about the trucking industry.
The terrorist attacks of Sept. 11, in particular, added to the upward pressure on insurance rates. Reinsurance firms such as Lloyds of London boosted premiums even higher, Dicker notes, to compensate for a higher perception of risk for other such attacks using transportation networks.
“After the attacks, many insurance firms were concerned about their exposure, especially in light of falling stock market investment returns,” he says. “With trucking already a loss leader, excess liability coverage tripled and quadrupled in some cases. I know of a squeaky clean 25-truck fleet with no claims that watched its annual liability coverage cost rise from $16,000 three years ago to $48,000 today.”
According to the American Trucking Associations (ATA), truck insurance costs jumped 37% to 120% in the year following the Sept. 11 attacks. Though insurance rates aren't going up nearly as fast now, they are still continuing to climb, says Bob Costello, ATA's chief economist.
“While the rate of insurance rate hikes have lessened, they are still going up and many carriers are taking on more risk in the form of higher deductibles to cut their insurance premiums,” he adds. “That can make accidents much more costly to a fleet.”
For owner-operators, insurance price hikes can be even steeper, which is why finding ways to safely reduce premiums is critical.
Most trucking insurers are going to look at are safety and driving records first, says David Ware, loss prevention operations manager/business markets for Liberty Mutual. Having a clean, safe record, then, may translate into lower insurance premiums.
“We want to see a clean motor vehicle report (MVR) for at least the last three years — no DUIs, reckless driving, etc.,” says Ware. “Then we make sure the CDL holder has a minimum of three years of driving under his or her belt.”
“Crashes are an inherent risk in the transportation industry,” he adds. “So we take a close look at what kinds of accidents have occurred and what role the truck had or did not have in causing them.”
Mondics Insurance's Dicker agreed. “The accident track record and loss history of a trucker is key,” he says. “That loss history is going to factored into any insurance premium calculation.”
Ware agrees that insurers take a close look at accidents, but also notes that crash data is subdivided into avoidable and non-avoidable accidents.
PERSONAL RECORD COUNTS, TOO
The personal driving record of a commercial vehicle operator is also critical, especially for small independent contractors that may employ several drivers, says Sandra Yambor, vp of TransGuard Insurance.
She cites the Texas civil case of Joe Roane Co. vs. McFarland, where punitive damages were awarded to the plaintiff after the employer was found negligent for letting an employee with 13 moving violations operate company equipment.
“It must be remembered that the courts have upheld that a liability policy does not cover punitive damage awards in all cases, nor excess judgments over policy limits,” she says. “The message from this case comes through loud and clear — get the driving records, personal and commercial, of all who drive for you and review them periodically.”
LOWERING DEDUCTIBLES
One tactic for lowering costs is to raise deductibles — the portion of a claim paid by the trucker. But while that will lower the overall premium, Mondics' Dicker says it may not be the smart way to go.
“You have to weigh the cost savings against the potential number of claims,” Dicker explains. “If you go to a $5,000 deductible to save $3,000 a year, it may not make economic sense if your loss history isn't very good.”
Independents are usually responsible for four main deductibles- accident liability plus physical damage to cargo, truck and trailer. If the deductible for each is typically $1,000, for a total of $4,000, raising the deductible to $2,500 in each category exposes the owner-operator to $10,000 in total deductibles.
“As a result of the great total deductible, one accident could easily cost the independent most if not all of his or her savings,” Dicker says.
That's why one strategy calls for using an aggregate or compound deductible. This means one deductible applies to all the insurance coverage carried by an owner-operator or fleet -physical damage to cargo, truck, and trailer as well as accident liability. This can result in a smaller monthly insurance premium to truckers, while not exposing them to a major loss.
A side issue to concerns about deductibles is the valuation of the owner-operator's equipment. “It's one of the most difficult questions facing operators — how much they should insure their equipment for,” says Dicker. The higher the value placed on one's equipment, the higher the premiums could be.
However, underinsuring equipment to get lower premiums could backfire if the owner-operator suffers a total vehicle loss in an accident. “The key is to make sure you're not over-insuring or under-insuring your vehicle in extremes,” says Dicker.
MORE COVERAGE OPTIONS
Dicker also notes several other coverage options independents should consider. “Binders, tarps, tie-downs, chains, etc., can all be insured even if you don't cover the trailer,” he says. Coverage can usually be purchased with a low deductible — typically $100 — regardless of what deductible is carried on the tractor.”
According to Dicker, owner-operators in particular need to make sure they have what's called non trucking liability, or NTL, coverage.
“NTL comes into play when you are not under dispatch, not under load, or not under the operating authority of a carrier and you have an accident,” he says. “It also covers certain ‘gray areas,’ such as if you are dispatched by a carrier but deviate from your route to visit your Aunt Mary and have an accident.”
Dicker says NTL coverage is usually inexpensive. For example, Mondics offers up to $50,000 worth of NTL coverage for $22 a month and $1 million worth of coverage for $28 per month. Ideally it should be obtained from the same insurer an owner-operator uses for primary coverage.
“We're in a bad industry when it comes to risk because the workplace is out on the road and that's a dangerous place to be,” Dicker adds. “So you have to put pencil to paper and figure out what insurance package makes the best sense in terms of your operation.”
Tips from an expert
David Ware, Liberty Mutual, suggests that small fleets in particular should do the following:
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Hire drivers who have a clear driving record for the past three years;
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Monitor driver performance using technology such as GPS (global positioning system) or ECM (engine control module) data;
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Establish and monitor compliance with policies on use of seat belts;
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Reward drivers for maintaining multiple years of clear driving records, not just avoiding a crash during a short period of time;
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Establish crash goals and make sure that management is also rewarded for achieving them.
Hazardous duty
According to research compiled by the Occupational Safety & Health Administration, trucking is one of the most dangerous jobs in terms of at-work fatalities and injuries.
For example, from 1992 to 1995, truck driving had the most fatalities of all occupations, accounting for 12% of all worker deaths, with about two-thirds of all fatally injured truckers resulting from highway crashes. Truck drivers also had more nonfatal injuries — over 151,000 — than workers in any other occupation in 1995, with 50% identified as sprains and strains.
According to OSHA, common trucker injuries are:
- Strains and sprains
- Bruises
- Fractures
- Cuts and lacerations
- Soreness and pain
- Multiple traumatic injuries
OSHA said the events leading to and/or causing those injuries include:
- Overexertion
- Contact with object
- Being struck by an object
- Falling (on the same level)
- Transportation accidents
On the road
One reason insurance costs for truckers keeps rising is that the cost of highway accidents is skyrocketing tremendously.
According to data compiled by the Federal Motor Carrier Safety Administration (FMCSA), roughly 475,000 large trucks with a gross vehicle weight rating of more than 10,000 pounds are involved in crashes every year, resulting in approximately 5,000 fatalities and 142,000 injuries.
Of those 5,000 fatalities, about 74% were occupants of other vehicles (usually passenger cars), 3% were pedestrians, and 23% were occupants of large trucks. However, research by the American Automobile Assn. (AAA) found that the unsafe actions of automobile drivers are a contributing factor in about 70% of all fatal crashes involving trucks.
FMCSA also reports that speed — both exceeding the speed limit and/or driving too fast for road conditions — was a contributing factor in 22% of fatal crashes involving a truck in 2000. Combined with the unsafe actions of the automobile driver, FMCSA believes a larger cooperative effort is needed to attack the problem of fatal truck crashes, largely because motorists seem unaware of how to safely share the road with large trucks.
