The Moneyball effect: Controlling out-of-control insurance premiums

Lawyers drive truck crash insurance settlements higher

One large trucking company recently renewed its insurance coverage at a lower cost than it paid in 2019.

In 2020, that statement is as implausible as it gets when it comes to trucking insurance, but a participant during one session of the recent Truckload Carriers Association’s Virtual Safety & Security meeting promised this did happen.  

“[For] well-run motor carriers that are doing it right, there will be a competitive market,” Chris Mikolay, vice president of national accounts for underwriter National Interstate Insurance, told attendees. “There are going to be insurance carriers that understand that is a good bet for them to make.”

The session, “Safety Perspectives on Insurance Purchasing,” dived deep into the hidden costs behind insurance premiums and what steps carriers can take today to try to hold the line on expenses.

The discussion was sponsored by Idelic.

“If you don’t have your house in order, they are going to come after you,” said Mehdi Arradizadeh, vice president of safety and risk management for Anderson Trucking Service.  Arradizadeh said he hates for his trucks to run through Texas, which is notorious for high-priced jury awards. “And that is why insurance companies don’t want to insure trucking anymore, because of these large, large settlements and verdicts,” he said.

Mikolay said any underwriter “worth its salt would be looking at IFTA [International Fuel Tax Agreement] mileage before they are putting the quote together.”

“If you’re running most of your mileage below I-10 versus most of your mileage somewhere in the Midwest or in Nebraska, that is going to provide two very different prices,” he said, noting that the future of insurance is based on big data.

What Moneyball can teach us

“The future is really Moneyballing the industry where we will start to … [combine] claims data with where they are occurring and when, and pairing that with driver profiles, traffic information, weather, etc.,” Mikolay said. “It is going to be very interesting when we start to harness the power of telematics. Underwriting is coming out of the Dark Ages slowly and technology is going to transform our industry significantly over the next decade.”

Currently, though, carriers are facing insurance premiums that are rising faster than the SpaceX rocket that just shuttled U.S. astronauts to the International Space Station.

Todd Reiser, vice president of transportation for Lockton Companies, said premiums on “excess insurance” — insurance that covers the insured above specified primary or self-insurance limits — have increased between 300% and 400% this year over 2019, “which is resulting in … trucking companies making decisions on how much they want to purchase or how much they can afford,” he said.

Reiser said insurers are starting to ask questions regarding mileage driven within various states and regions the carriers operate in — including regions that are notorious for high verdict awards.

“Insurance companies want to know how much exposure they have, or your company may have, to those areas and if you do have that exposure, what are you doing about it,” he said. “A lot of … trucking companies are putting an embargo in place around areas where they know they have a terrible jurisdiction.”

Even with rising premiums, though, Reiser said insurers are not making money. According to the Conning Commercial Automobile Midyear 2019 report, the combined ratio in 2018 for commercial auto was 110 — the eighth straight year above 100. Like operating ratios, a number over 100 indicates a financial loss.

“Rates have continued to rise, not just the last two years, but for the last five years, and they are still not anywhere near where insurers are profitable,” Reiser said. Underwriters, he said, saw a return on equity of just 0.2% in 2018 and 0.3% in 2019.

What can carriers do?

Contrary to popular opinion, the safety and insurance experts said there are things carriers can do to keep rates manageable, or, in some cases, even to lower premiums. Carriers should start by understanding what is driving higher insurance rates. Reiser cited several factors:

  • Declining road infrastructure.
  • Inability to find good drivers.
  • Aging and unhealthy driver workforce.
  • Driving distraction (both commercial drivers and automobile drivers).

Of course, the big one is litigation. Reiser said that in many cases, the facts of the case are irrelevant.

“One of the points we want to really hammer home … is that the facts of the case tend to not really be relevant in terms of what the jury may award,” he said. “We’ve seen some very public examples of that in the past year and a half where trucking companies have been hit by enormous verdicts that were not really [equivalent] to the facts of the case.”

Mikolay said the adoption of truck safety technology can help.

“If you are using it correctly, it is absolutely a way for you to avoid losses to begin with, and once you have one, to know exactly how you should adjudicate the claim,” he said.

When underwriters set prices, Mikolay said they look at a number of criteria, and by understanding and proactively managing to these criteria, carriers can get a better handle on their exposure. These are broken down into what Mikolay called “science” and “art.”

Science criteria include trending and developing past losses and extrapolation of data such as lanes of travel, commodities hauled, radius of travel and safety technologies. The art criteria include things such as management team depth, safety culture, financial strength, CSA scores, safety technologies, and overall trends both good and bad.

“The art is saying, do we think they will perform better, or do we think they will perform worse?” he said. “You can have a motor carrier that has very few losses and that is a dangerous risk to insure. There are motor carriers that might have a bad loss or a number of losses that in the future are going to perform much better, and that is a much better risk to insure than a motor carrier that doesn’t have any losses. Sometimes, motor carriers are just lucky or unlucky.”

Mikolay advised carriers to manage their risk better through proactive coaching and training and not cutting corners. He also advised use of cameras — both inward-facing and outward-facing — suggesting that any drivers who leave due to inward-facing cameras will be a net positive for the fleet based on the training and fatigue management programs made possible by the camera that generally result in higher levels of safety.

He also said carriers should build a top-down safety culture, deploy technology smartly, follow an aggressive claims management program, develop strong risk partnerships with insurers, determine how much risk they are comfortable taking on themselves, and determine the correct liability limit for their operation.

Arradizadeh advised companies to clearly articulate their policies to all company personnel and ensure training documents and presentations are accurate and thorough.

“Plaintiff attorneys don’t care about liability anymore,” he said. “They are going to dig and dig and dig and find something in your background, in your driver’s background, or deficiencies in your systems to beat you up and the way they beat you up is to get the jurors angry at you, and when they get angry at you, they give away a lot of money.”

Click for more FreightWaves articles by Brian Straight.

You may also like:

Vehicle insurance report paints grim picture for industry, rates

Inside hours-of-service changes: How driver productivity, safety benefit

Mullen: FMCSA considering inclusion of hair testing results in drug clearinghouse