The number of insurers writing excess trucking liability coverage has historically been limited. Very few insurers are expressing interest in entering the excess trucking marketplace. With some insurers exiting the excess trucking marketplace, a select number in 2019 will entertain lead excess layers, with double-digit rate hikes on most accounts.

In addition, more trucking markets are reducing the capacity they offer for excess coverage. For example, in the past, several markets would offer large limits or capacity of up to $25 million. For the foreseeable future, most markets are offering lower limits, in many cases $5 million or less. Coverage towers that two years ago might have been assembled with a handful of insurers now require much more participation through smaller layers. Similarly, even some low excess layers — such as $4 million excess of $1 million and $5 million excess of $5 million — now involve multiple insurers. A dramatic change in the past six to 12 months has occurred in the marketplace for layers excess of $10 million, as some markets have issued non-renewals while others have increased rates so much that the price is tantamount to a non-renewal. For example, one large insurer’s quote on a national trucking firm account for a $10 million layer excess of $30 million went from $90,000 to nearly $1 million.

Retail agents and the trucking firms they serve can expect to see higher rates on both new and renewal business. Accounts without prior-year or new losses and with favorable loss development and good safety records, for example, may expect rate increases on the lead layer in the mid-to-high-single-digit percentages, while markets continue to press for double-digit increases. Accounts with even moderate loss history will see larger double-digit increases.

Unlike in the past, excess insurers are now paying much closer attention to pricing on layers underneath, as well as above where they are participating. More excess insurers are issuing quotes conditioned on seeing the quotes on higher layers, to avoid a phenomenon known as “layer trapping” or “inversion.” Layer trapping occurs when the premium for limits lower in the tower is less than that of higher excess layers.

(Source 1) (Source 2) (Source 3)

In practice, excess insurers seek a spread of pricing aligned with their expected exposure. Traditionally, the cost per million dollars of successive additional coverage goes down with an anticipated reduction in risk. In the current marketplace, however, those increased limits factors (ILFs) have been increasing. The reason? More claims are hitting excess insurers.

(Source 4-1, Source 4-2, Source 4-3, Source 4-4) 

WHY THE ROAD IS TURNING

Conditions in the excess trucking marketplace are changing because commercial auto liability claims have been pressuring underwriters’ profitability for several years. The reality is that a single occurrence can exhaust the primary and several excess layers, taking along with them multiple years of premium. Insurers are forced to make changes to remain in business.

In recent years, large verdicts stemming from accidents have encouraged litigation against trucking firms and pushed up settlement amounts. Loss severity overall has inflated, with an average claim now in the millions of dollars. As a result, legal venues make a difference and have become more important to excess trucking liability underwriters. With massive verdicts for plaintiffs over the last several years, insurers are keenly aware that trucking firms hauling freight through unfavorable venues have a heightened liability exposure if an accident occurs. Long- haul trucking firms essentially are at risk as soon as their trucks leave the garage.

The “frequency of severity” is another issue for liability insurers. Not only are average-size claims larger, but commercial auto accident claims are occurring more often. This is a function, partly, of economic growth since the Great Recession in 2007-2009. Since 2010, as unemployment fell, consumer and business spending increased. This has translated into more Americans driving to and from work, as well as more trucks on the roadways moving goods.

(Source 5)

Another factor prompting changes in the marketplace is the concentration of underwriters in the excess trucking segment. Mega-verdicts and more frequent losses therefore are hitting most, if not all, of the insurers in this space.

WHAT RETAIL AGENTS CAN DO

The U.S. economy cannot function without trucks, and trucking firms’ access to insurance is critical to their financial health. Although the insurance marketplace is challenging, retail agents can take several steps to assist trucking firms. These include:

Manage expectations. Sharp rate hikes may be an unpleasant surprise for insureds that do not anticipate them. The marketplace is changing because losses are outpacing premiums, and some insurers are no longer able to provide the capacity they did before.

Begin the renewal process earlier. Engaging multiple insurers to fill out excess insurance programs takes time, so retailers should begin the process much earlier than in the past. Ninety to 120 days before policy expiration may not be enough to secure needed capacity, especially on large, complex placements. It is important to remember that many excess liability insurers write other lines, and they may be unwilling to quote on trucking accounts later in the year.

Help insureds tell their story. Every insured trucking firm has a story to tell about its risk profile, and it should be prepared to relay this to underwriters. Enlist insureds’ help in gathering the necessary information about losses, business practices and what the firm is doing to improve its scores in the Safety and Fitness Electronic Records (SAFER) System6 maintained by the Federal Motor Carrier Safety Administration. Also, underwriters will want to see complete submissions with loss histories and descriptions of any large losses. Any omissions will delay consideration. Visiting with underwriters can make a difference in building trust.

Emphasize risk management. Loss control activities that focus on drivers — from hiring, to monitoring, to terminating them for violating safety procedures — as well as implementing technology solutions are important considerations for all trucking firms. Underwriters are increasingly taking note of risk management in trucking.

Partner with a specialist. A specialist with extensive knowledge of the marketplace is a valuable ally
even when capacity is ample, but in a changing marketplace where capacity is shrinking, a wholesale specialist’s expertise and trusted relationships can make an enormous difference in obtaining coverage to meet insureds’ needs.

BOTTOM LINE

Trucking firms have a rough road ahead in seeking excess liability protection. With capacity shrinking and rates rising, insurance will cost more for the foreseeable future. As some insurers pull back their participation, some programs may have gaps to fill. Retail agents should partner with a specialist wholesaler that has the experience, expertise, data analytics and market relationships to secure creative solutions.

CRC Group’s transportation casualty practice has hundreds of years of experience in serving the insurance needs of trucking firms, along with proprietary benchmarking resources. Constantly monitoring conditions in the marketplace enables CRC Group to develop creative solutions specific to trucking risks and to broker meetings with underwriters. CRC Group is about placing you first.

For more information about excess trucking and other risk areas, please contact your CRC Group producer.

Contributors:

Blake Bartnick is the Office President of CRC’s Dallas, TX office and a member of the Casualty Transportation Practice Advisory Committee

Terry Winkler is a Senior Vice President in CRC’s Chicago, IL office and a member of the Casualty Transportation Practice

Andrew Baker is a Senior Vice President in CRC’s Birmingham, AL office and a member of the Casualty Transportation Practice

Susan Malatt is a Senior Vice President in CRC’s Chicago, IL office and a member of the Casualty Transportation Practice

Craig Nettles is a Vice President in CRC’s Norcross, GA office and a member of the Casualty Transportation Practice

Abiy Dadi is an Assistant Vice President in CRC’s Norcross, GA office and a member of the Casualty Transportation Practice