The transportation insurance industry remains stuck in a decade-long hard market, where commercial auto carriers continue to raise rates for both primary and excess/umbrella coverage, while also limiting capacity and applying strict risk selection and underwriting criteria.
“Underwriters’ standards are becoming stricter than ever,” said Clark Miller, a broker in Burns & Wilcox’s transportation practice group. “That means the pool of accounts that qualify for standard markets continues to shrink, and the E&S marketplace is definitely staying very busy.
“Piggybacking on that, the gap between preferred accounts and stressed accounts in transportation is getting wider – and that goes for segments like for-hire trucking as well as the heavy business auto segment, like waste and recycling, environmental contractors, and general contractor fleets.”
Burns & Wilcox is a North American wholesale insurance broker and managing underwriter with a growing transportation practice. Clark, who is based in the firm’s Arlington, Texas hub, said that alongside raising rates for auto liability coverage, carriers are also starting to “cross off certain states or metro areas entirely”.
“The insurance companies would like the transportation companies to avoid certain areas,” he said. “There are certain areas where the insurance companies are saying: ‘We’re not writing accounts based in this state, or based in these five counties, or based in this corner of the state.’”
One reason why carriers might want to avoid a certain state or area is the local political climate. Some states are more prone to ‘nuclear verdicts,’ where juries grant huge $10+ million awards, often against commercial transportation companies or other professions that could cause bodily injury.
Burns & Wilcox cited one study, which said the average nuclear verdict against a commercial transportation client rose from $2.3 million in 2010 to $22.3 million in 2021, a stunning 1,000% increase. This has caused both skyrocketing rate and renewal increases in recent years.
“The fear of these big verdicts leads insurance companies to settle claims, sometimes that policy limits, as quickly as they possibly can,” Clark explained. “The obvious effect of that is that it, in general, pushes rates up because claim settlements are higher.
“The best defense that [commercial transportation] clients can have against the threat of nuclear verdicts is … documented and enforced systems of safety management and Department of Transport (DOT) compliance. I know there are a lot of good agencies who help their clients with that sort of system and support.”
Technology is playing an increasingly important role in the commercial transportation sector, especially – as Clark noted – in improving driver safety with telematics, cameras, sensors, and things like simulated driver training.
“Technology like dash cams and telematics to capture drivers’ performance used to be something that more or less created bonus points with insurance companies when it came to rating,” Clark commented. “Now, it’s becoming more par for the course and insurance companies ultimately expect motor carriers and insureds to use this technology as a standard procedure.
“Taking that a little bit further, we’re now seeing auto liability programs entering the market that base their entire rating system off the telematics data almost in real-time. It’s going to be very interesting to see how that progresses as time goes on – that’s definitely a new development.”
Moving forward through the second quarter of 2022 and beyond, Clark expects the transportation insurance market to continue “getting harder”. In this context, it is critical for agents and brokers to build highly effective and impactful submissions for clients which can assist in risk differentiation.
“The criticalness of presenting the account as favorably as possible is more important than ever,” Clark emphasized. “Ways that you can do that are going to include data analysis, and also a narrative.
“Data analysis is going to involve doing some pre-underwriting on the front end to quantify the level of risk and potential profitability versus the target that you’re looking for. And then the narrative is really just going to be the story of the account with supporting documentation and evidence, whatever we can provide to support the story of what the insured is doing to make their future more profitable for underwriters than their past has been.
“As a wholesale partner, we definitely work very hard to collaborate with our agencies and producers in helping with that. I would encourage everybody to work with somebody who gives your account and your submission the attention that it deserves and works with you to improve the marketability of your account rather than just blasting it out to market and crossing your fingers and seeing what happens.”