Insuring a Safe Future for Our Customers
By Kenan Advantage Group
June 19, 2019
Trucking companies are required to be properly insured, but insurance is becoming harder to find and much more expensive. KAG President and CEO Bruce Blaise talks about why this is happening, why shippers should be concerned, and what KAG is doing to properly manage risk for both shippers and KAG.
Q: There’s a lot of talk lately about how insurance costs are increasing for transportation companies. Is KAG seeing those increases?
A: Absolutely. Most of the companies that provide insurance to the trucking industry are raising their rates. We aren’t talking about five percent increases; in some cases, trucking companies are seeing their premiums double, amounting to millions of dollars in higher costs. KAG hasn’t been hit that hard, but we are facing larger premium increases than we’ve seen in a very long time.
These kinds of increases have happened before, most recently following 9/11 when everyone’s sense of risk went way up. Today we’re on the verge of another situation where insurance costs are going to take a giant leap, and I don’t see this growth in premiums easing anytime soon.
Q: What is driving the increases?
A: One of the biggest drivers is what some refer to as “nuclear verdicts” in truck-related crashes. Juries increasingly see accident-related lawsuits as a way to encourage social responsibility by companies, which is important. However in some cases, these recent lawsuits have ended with huge settlements as a way to punish companies regardless sometimes of the proven level of liability involved by the trucking company. There have been a number of verdicts in the $100 million-dollar range. One recent truck-related accident resulted in a $280 million verdict.
As a result of paying out more on accidents, many insurers are losing money on their business with trucking companies. To be profitable, they must significantly increase their rates.
Q: How are trucking companies adapting to these increased insurance rates?
A: Some of them aren’t; they’re just going belly up. Margins are razor thin in this business and not all companies have the financial strength to adapt. I know of a medium-sized carrier (about 150 trucks) that simply shut down. The stronger carriers are able to deal with these higher insurance costs, but only by offsetting some or all of them through rate increases.
Q: Can’t you shop around to find better rates?
A: We do that. We actually shop our insurance globally to find the coverage we need at the lowest cost possible. But the number of potential insurers is shrinking. Frankly, it’s tough for them to make money insuring trucking companies, so some of them are getting out of that market. That means fewer potential insurers, which reduces competition, and that further drives up insurance rates.
Maybe you get a discount on your personal car insurance because of your good driving record. The frustrating thing in our business is that even trucking companies with clean accident records can struggle to find insurance, and when they do it comes with a growing price tag.
Q: What should shippers do?
A: Make sure you properly vet and aggressively manage the carriers you hire. Ask about their safety record and their insurance strategy. Depending on the freight, some carriers are required to carry only $750,000 in liability insurance. That’s not much in the face of multi-million-dollar settlements.
And here’s a fact that should frighten shippers. Under the legal concept of “vicarious liability,” plaintiffs’ attorneys can also go after the shippers whose freight/product was on a truck that’s involved in an accident.
When determining the liability of shippers, attorneys will investigate them for any hint of negligence. They will find out if the shippers took adequate steps to ensure the carriers they hired had appropriate safety practices and processes in place, and sufficient insurance to cover any losses. If not, the shipper could well find themselves on the hook for part or all of the settlement costs.
Q: What is KAG doing?
A: The most important action we’re taking is doing everything we can to reduce our risk to the lowest level possible. That includes a relentless focus on safety. We hire drivers with solid safety records, then provide them with the additional training needed to ensure they are some of the safest drivers on the road. We also continue to invest in safety-related technology in our trucks.
Reducing our risk not only helps us negotiate the lowest possible insurance, but also decreases risk for our shippers while increasing the service level we provide. Of course, those risk-reduction efforts require increased investment on our part. Those costs must, eventually, be reflected in our rates.
Q: How successful have your efforts been?
A: With help from our insurance broker and insurers, we routinely measure ourselves against other carriers on a number of performance metrics, including insurance costs. The available benchmarks tell us that we are in a good position and are managing these costs well.
Managing risk – the risk to KAG, our customers, and other drivers on the road – is a critical activity. We are doing everything we can to be good stewards on behalf of our customers, limiting risk to the greatest extent possible and keeping the related costs to the lowest possible level, all while putting the safety of our drivers and the public at the forefront.