The transportation insurance sector has seen its share of challenges in recent years. Prior to the COVID-19 pandemic, the industry was plagued with issues including distracted driving, a general increase in auto claim costs thanks to new technology, and a rise in catastrophic liability claims driven by social inflation and nuclear verdicts.
All of these factors drove transportation insurance loss ratios to deteriorate dramatically – which, in turn, spurred insurers to raise rates for both primary and excess/umbrella coverage, while also restricting capacity and applying more stringent risk selection and underwriting criteria.
IBA recently spoke to a panel of experts on where the transportation segment is headed, the effects of the pandemic, and the challenges it faces in a post-COVID world.
While the COVID-19 pandemic did spur a decline in claim frequency thanks to less congestion on the roads, there was no concomitant reduction in claim severity, according to Justin Wenzelman, vice president of transportation at Cottingham and Butler Insurance.
“It’s almost counterintuitive to what we’ve always heard in the industry, which is that frequency breeds severity,” he said. “We’re waiting to see what happens over the next 12 to 24 months now that the roads are back open, everybody’s traveling again, and the [courts can clear their case backlog].”
And with traffic returning to pre-pandemic levels, the challenges that faced the sector before COVID have made an unwelcome return, according to Mark Gallagher, national transportation practice leader at Risk Placement Services.
“There are a lot of programs entering the space with private equity [backing], and that allows carriers and reinsurers to get into a segment of business that they normally wouldn’t jump into,” Gallagher said. “Ultimately, the feedback we give our clients is that the drivers and fleet managers who take care of their safety scores and driving records will end up with preferential insurance rates.”
One of the pandemic’s impacts on fleet operators and trucking companies was that many firms chose to change their supply-chain acquisition strategies to more local sources. Many also shifted their operations from “just-in-time” delivery to a “just-in-case” model, which meant increasing order sizes to try to head off issues caused by supply-chain disruption.
“What we’re seeing is the need for higher-limit values on transit,” said Jack Falvey, chief operating officer at Falvey Insurance Group. “We did see an increase in frequency of cargo claims during the pandemic, primarily driven by goods being left at ports, or the congestion or delays that came from that. We’re now seeing more focus from clients on making sure they’ve got expanded coverage for delays or spoilage in their cargo policies.”