The current transportation marketplace is challenging to say the least. Insureds’ operating costs have continued to rise while freight rates and revenues have remained relatively stagnant. This is particularly true for trucking, where the impact of import tariffs and recent federal regulation changes are still largely unknown.
Market trends
As the turbulence in the economy continues, today’s market is reminiscent of what we experienced in 2020. Supply chain issues, fuel surcharges and six figure physical damage claims are all driving premium. At the same time, the impact tariffs could have on the industry remains to be seen.
The American Trucking Association (ATA) estimates that new truck prices could increase by up to $35K due to tariffs – potentially preventing insureds from upgrading or expanding their fleets. And with companies operating on margins that are already razor thin, the idea of increased costs of new and replacement parts has compounded an already tough market.
According to the Ivans Index, commercial auto premiums are up 9.4%. Larger well-run operations with contracted relationships and established routes seem to be more insulated from the current economic conditions; however, fleets with distressed characteristics have been particularly vulnerable in the hardening landscape.
In the business auto segment, standard carriers continue to evaluate the performance of their auto portfolios with many non-renewing package offerings, causing insureds to seek monoline solutions in the E&S specialty classes such as passenger transport, waste hauling, last-mile delivery, non-emergency medical, cannabis delivery and hazmat are under significant scrutiny, making it particularly challenging to find coverage for these operations. Additionally, hired and non-owned auto has been a difficult exposure for carriers to underwrite, either not being offered or driving significant premium.
The preferred trucking space has seen increased competition as tolerance for distressed characteristics continues to tighten and carriers battle for market share on preferred risks. Many operations that are currently ineligible for preferred consideration have turned to captives and other alternative risk transfer products as a solution.
Despite what can only be called a challenging market, we remain optimistic that freight rates will improve due to the number of motor carrier exits as supply and demand for freight capacity equalizes.
Capacity and pricing
The underwriting appetite in the Southeast is also making it incredibly difficult to write accounts with less than five to six years of experience. Accounts with any losses – regardless of size – are challenging as underwriters have become more concerned with the frequency.
States like New York, California, Texas and Illinois continue to see limited active players, and the casualty marketplace in New Jersey is essentially non-existent due to high-frequency claims and the increased limit requirement of $1.5M. We expect insureds will continue to reduce both the number of units and drivers due to the increase in cost.
It’s not all bad news, however. One bright spot in the market can be found in inland marine solutions. Several startups are emerging in the space as inland marine has traditionally been a profitable (but small) segment of a carrier’s business.
Increased investment in safety technologies and the data they provide are also playing a positive role, helping both fleet owners and underwriters better understand and manage risk. It can often prove invaluable in the current litigious environment. You can learn more about telematics and the protection they help provide insureds here.
There’s been renewed interest in the marketplace in states like Florida and Georgia, a direct result of recent tort reform. Once considered too controversial to take on, tort reform has become a focal point in state legislatures across the U.S. This growing interest can be attributed to mounting concerns over the economic impact of litigation on both businesses and the broader economy. You can read more about how states are grappling with the challenge of balancing a legal environment conducive to economic growth while still holding the appropriate parties accountable for wrongdoing here.
And finally, the Texas Supreme Court recently reversed an earlier decision that levied a financial penalty of nearly $90M against a trucking company. While it’s too early to tell if the outcome of this case that has long been considered the largest nuclear verdict in the transportation industry will have an impact on rates, the decision does help set a new precedent in Texas for this type of claim.
Emerging risks
There are a number of emerging risks in the transportation industry, including a rise in cargo theft, changing driver requirements, the integration of electronic and autonomous vehicles into the marketplace and the growing importance of technology, data and analytics in ensuring safety and efficiency.
Cargo theft
Cargo theft is on the rise. Thieves are getting smarter and with AI coming into play, they're just getting more sophisticated. We’ve seen everything from falsifying documents to sophisticated hacking of tracking systems with bad actors infiltrating the system and recreating correspondence between a dispatch and a shipper or consignee.
Driver requirements
Increased scrutiny around English proficiency and violations for drivers not meeting the new standard is impacting insureds that are already contending with a driver shortage. Drivers that are unable to demonstrate the state required levels of English proficiency may receive out-of-service violations – regardless of their overall driving record. We have seen this play out in California, Florida, Illinois, New Jersey and Texas, particularly.
Electronic and autonomous vehicles
Discussions about how electric and autonomous vehicles will be incorporated into the market are ongoing. However, we believe these vehicles will not be fully implemented into big rig trucking companies anytime soon.
Technology, data and analytics
The transportation industry has historically been slow to adopt technology, but insurers are now prioritizing risk data and technology adoption as part of their underwriting criteria. Investments in electronic logging devices (ELD), safety cameras and vehicle telematics can not only improve safety but also result in better insurance terms.
Underwriters with access to online products typically have the advantage because they can provide quotes and issue policies quickly. This is compounded by the use of AI to help drive efficiency on account review (e.g., determining the radius of operations and mileage).
Amwins has a comprehensive and proprietary portfolio of data and analytics capabilities that we call Amwins DNA. Data and analytics are foundational to how Amwins supports our industry-leading broker and underwriter teams, our retail clients, and our market partners. With Amwins DNA, we are able to build capacity and create new and exclusive products and programs while also providing client deliverables, such as coverage benchmarking, to equip our clients with knowledge and tools that their insureds will value.
London
Domestic markets in the U.S. are packaging auto physical damage (APD) and motor truck cargo (MTC) coverages with auto liability, offering reduced rates and causing a downturn in the London market.
We have been here before, and believe we are halfway through what is typically a three-year cycle during which domestic markets look for additional revenue streams but quickly revert when losses begin to outweigh the premium being collected.
Property markets are also looking at APD and MTC as it is short tail business without the requirement for re-insurance. And we have seen higher limits on MTC, which can reduce the requirement for small excess layers.
Additionally, some markets have begun to offer non-truckers’ liability – packaging it with APD to appeal to those who may not want to purchase a separate policy. We’ve also seen higher limits on excess coverage and towing.
Carriers are trying to think outside the box to drive business in an otherwise stagnant market. At times like this, it’s more important than ever to help ensure that your client has the right product and the right coverage rather than the cheapest pricing.
Takeaway
With no relief expected in rate or appetite, retailers should be prepared to play offense. At the same time, being transparent throughout the marketing process is imperative to help ensure an adequate match of rate to risk.
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