By Steve Groth
According to the American Transportation Research Institute (ATRI), insurance availability/cost was one of the top five critical issues facing the trucking industry in 2020, both at the national level and in Indiana. ATRI found that insurance costs per mile have increased 18.3% over the last five years. The increase was three times greater for small fleets than for large fleets. Trucking companies are also facing the possible increase of minimum insurance liability limits. In June 2020, the House Transportation and Infrastructure Committee approved an amendment to the INVEST Act that would raise the minimum liability insurance requirement for commercial motor vehicles from $750,000 to $2 million. The chances of this amendment making it into law increased with the Democratic Party gaining control of Congress and the White House during the 2020 election. Against this backdrop, transportation companies should review their current insurance programs and consider all available options. This article offers some suggestions that might help them lower their overall risk management costs.
Deductible or self-insured retention
A deductible and a self-insured retention both shift a portion of the insured risk from the insurer to the policyholder. Some trucking insurers may only offer policies with a deductible. This lets the insurer maintain control of claims, and the deductible amount counts toward the policy limits. Companies should regularly consider raising their deductible, which generally results in lower premiums.
Companies also should look into obtaining a policy with a self-insured retention (SIR) instead of a deductible. With an SIR, the insured is responsible for all claim handling expenses within the retained amount (investigation, settlements, defense costs) and thus has more control over how claims are handled. In addition, the SIR does not reduce the coverage limits. A policy with an SIR is usually only available to those insureds that demonstrate the financial and operational ability to handle claims and may not be an option for smaller fleets.
Excess, cargo and broker liability coverages
Surprisingly, many motor carriers obtain only the minimum required coverage without excess or umbrella coverage. This is usually a commercial auto insurance policy with limits of $1 million or $5 million. One serious accident can present a seven- or eight-figure exposure and exceed those limits. Without excess coverage, such a claim can pose a serious threat to the company. Excess coverage is less expensive proportionately than underlying coverage, and in most instances is worth the cost.
Some motor carriers also omit cargo insurance, relying on shippers to insure their freight. This can lead to expensive losses or, alternatively, expensive fights over who should bear the loss. Carriers who broker loads to other carriers should consider obtaining broker liability coverage to cover claims in which the carrier to whom a load was brokered suffers a loss but is unwilling or unable to pay for the loss.
Captives and groups
When fleets get large enough, they can consider options that let them own the underwriting aspect of their insurance program. A transportation company can form its own insurance company called a captive, thereby gaining control of the claims handling process as well as the coverage provided. Its goal is to minimize costs associated with liability claims. The requirements for forming and maintaining a captive insurance company vary depending on the state of domicile.
Another option is joining with other similar or related businesses to form a risk purchasing group (RPG) or a risk retention group (RRG). An RPG can obtain more liability coverage at a lower cost for its members than they could individually. An RRG can be thought of as a group captive insurance company. RRGs can offer reduced costs by avoiding the overhead expenses of major commercial insurance carriers, and also from benefiting from the invested income earned by invested premiums. An RRG must be chartered in the state of domicile but is allowed to operate in any state while being exempt from many state insurance laws.
The cost of any insurance program depends on the company’s loss history and safety record. Investments that improve a transportation company’s safety program, such as training and technology, may provide the greatest return on investment for reducing future insurance costs.•
• Steve Groth is a partner in the litigation group at Bose McKinney & Evans LLP handling transportation, business and personal injury litigation. Opinions expressed are those of the author.