Drivers are safer but insurance costs continue to rise

Chart of the Week: Insurance Expense for Dry Van Carriers, Unsafe Driving Violations – USA SONAR:INSURE.VCFOO, VIOUSD.USA

According to the Federal Motor Carrier Safety Administration (FMCSA) — the branch of the U.S. Department of Transportation (DOT) responsible for governing commercial truck operation safety compliance — violations for unsafe driving are down 2% year-over-year through November. Over the same time, insurance costs as a percentage of revenue reported by the Truckload Carrier’s Association (TCA) members have risen almost 10%.

To get a clear picture we would need to see the total revenues but looking at the past five years’ worth of insurance cost data there is a clear upward trendline from 2015. There was a moment of decline in mid-2018 as revenues are assumed to have surged due to the hottest summer peak season in over a decade. Insurance costs quickly pick up where they left off by late 2018 as carriers put more money aside for a consistently increasing amount liability.

Insurance costs are primarily a combination of carrier liability insurance premiums and reserves — money earmarked for the future cost of an incident that is not paid to an insurance provider — spread over the course of the year. There are several different types and layers of carrier insurance, but we will stick to the liability portion here.

Insurance premiums, like the ones paid for automotive, are calculated by insurance providers by figuring out the likelihood of a carrier having an incident and how much that accident may cost. The key component to the calculation is the second part, the cost of the incident.

Looking at the FMCSA data, unsafe driving violations fell for the first time since 2013-14. Looking at various data sets such as the Cass Freight Shipments Index and FreightWaves Outbound Tender Volume Index (OTVI) volumes fell by around 3-4% through November of 2019, which could account for some of the lower violation count. The issue with this is that unsafe driving violations do not appear to have much if any connection to freight volumes over the past 7 years. Freight volumes increased almost 3% from 2013 into 2014 according to Cass, while unsafe driving violations fell almost 14%.

Of course, the behaviors of the enforcement agency may not be consistent from year to year as procedures change, but part of the insurance calculation is dependent on data gathered by the FMCSA, regardless of their enforcement practices.

Commercial vehicle accidents with a fatality have been declining over the past two years. Chart: SONAR FATL.USA

As mentioned, the biggest reason for increasing insurance costs lies in the increasing amounts awarded against carriers who have severe incidents. There have been several “nuclear” verdicts against commercial carriers over the past few years. A nuclear verdict is when a jury awards a settlement over $10M. Most jury trials end up finding against the trucking companies as there is not an abundance of sympathy for truck drivers outside of the transportation community. Even with declining amounts of fatal accidents involving commercial vehicles — down 11% y/y in 2019 — insurance costs are on the rise as settlement amounts for those that end up in court balloon.

The cost of life is immeasurable, and safety should be at the forefront of everyone’s mind, especially when operating an 80,000 pound vehicle. The impact of these verdicts, however, will become apparent in the coming year as more carriers go out of business and less operators enter the market due to higher costs.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new data sets each week and enhancing the client experience.

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