Data from the American Trucking Research Institute shows that insurance premium costs per mile have gone up more than 17 percent since 2013. The rates rose 12 percent between 2017 and 2018 alone, bringing the average rate to about 8.4 cents per mile.
The rising cost of coverage is difficult enough for larger companies to afford, but smaller freight carriers are finding it almost impossible to foot such sizeable bills. That was one of the main factors forcing 795 trucking companies out of business in 2019, which amounts to roughly 24,000 trucks now sitting idle.
Have insurance companies decided to start gouging trucking fleets?
Apparently not. Brian Fielkow, writing about what’s being called the insurance crisis for FreightWaves, insists, “Insurance is not the problem.” This is because “Insurance rates reflect the condition of the applicable market.” In other words, “Blaming insurance companies is like blaming the mirror for the image it reflects.”
So, if not the insurance companies, who’s driving the increase in insurance rates?
The short answer is that rates are increasing because court verdicts against trucking companies have been getting larger—quite a bit larger. CaseMetrix collects data on court cases involving fleets across seven states in the southeastern US. What this data shows is that from 2012 till today, the average verdict against a trucking company has shot up from $2.6 million to more than $17.5 million.
A big driver of increasing insurance rates then is the greater frequency of so-called nuclear verdicts, which are those exceeding $10 million. In a single case in 2019, Schnitzer Southeast was hit with a verdict of $280 million, probably the biggest in history. But that raises another question: why are there suddenly so many nuclear verdicts being awarded to plaintiffs?
And, more importantly, what can fleet managers do to not only avoid nuclear verdicts, but to get their insurance premiums low enough to afford?
The Usual Suspects
One of the problems, according to Fielkow, is that “Plaintiffs’ attorneys have come to view trucking companies and their insurers as slot machines.” There’s no getting around it—unscrupulous lawyers are a big factor in driving up insurance costs, and they’re often acting in collusion with shady healthcare providers.
Fielkow describes scenarios where lawyers refer plaintiffs to doctors who mark up the cost of their procedures, sometimes as high as 20 times the amount they usually charge. The lawyer then turns around and uses the inflated cost as leverage for a larger settlement.
“One medical provider,” Fielkow writes, “was found to have testified more than 200 times at the request of the same law firm in less than four years.” He goes on to explain,
While multimillion-dollar verdicts make headlines, abuse more frequently occurs in routine settlements under $1 million. These unwarranted settlements burden the system as much as, if not more than, the occasional extreme verdict.
Sidestepping the plaintiffs’ usual healthcare provider is a common scheme, but some lawyers get even more devious, crossing the line into outright fraud. A case from Louisiana illustrates how lawyers in cahoots with pre-designated plaintiffs in one vehicle and “witnesses” in another can deliberately cause collisions with trucks—and walk away with hundreds of thousands of dollars to share amongst themselves.
Fortunately, the incident in this particular case was caught on video—from two different vantages, one on the truck and another in a nearby store. “Those cameras right there saved between $150,000 and $200,000 just by capturing the fraud and us not having to go and defend it,” defense attorney Doug Williams said.
The Enemy Within
Keith Dunlap, senior vice president for global claims-services provider Gallagher Bassett, points to another issue making fleets vulnerable to litigation. The trucking industry is currently wrestling with a driver shortage, which is leading to difficulties with both recruitment and retention. Against the backdrop of an aggressive litigation environment, these challenges lead to
negligent hiring and retention claims against the motor carrier, all in a concentrated effort to support gross negligence and punitive damage claims, maximizing recovery. These efforts can result in higher jury awards, adversely affecting insurers who write [policies]in the trucking space. Those insurers then increase their rates across their entire book of commercial auto business.
So, fleet managers are facing a catch-22: they’re struggling to hire good drivers, and they’re being punished—industry-wide—for every little misstep in recruiting.
In one case, Werner Enterprises was hit with a $40.5 million verdict after a driver, who’d only been on the job for 8 days, crossed a median and collided with an oncoming car, killing the driver. The attorney representing the driver’s family argued that Werner,
through its own inadequate operations and training programs for its student drivers via Roadmaster Drivers School, had a systematic disregard for basic safety policies and training of new drivers.
The outcome turned on the discovery that the student truck driver was operating the vehicle without being observed by a more experienced driver, as required by policy. These kinds of lapses in training protocol—along with distracted driving—are some of the infractions lawyers are most commonly going after.
What’s to Be Done?
The insurance crisis isn’t going to be solved through any quick fixes. “Significantly minimizing the cost of insurance is unlikely in the current environment,” Keith Dunlap says. But that doesn’t mean there’s nothing fleet managers can do. The overall strategy for any given company will involve fostering a culture of safety, a culture that aims for an incident-free record that prospective insurers will see as indicating a low risk profile.
Such a culture can be built on a foundation of established and emerging technologies. As Dunlap explains,
Of the top fleets in the United States, the majority have implemented some type of telematics. These motor carriers understand how collision-avoidance technology, auto braking systems, and video captures help reduce both the frequency and severity of loss. They also understand how implementing telematics helps protect against meritless claims by third-party attorneys. In my view, this is a key risk-management investment.
Cameras and recorders not only provide exculpatory evidence for drivers targeted by fraudsters—they also help those drivers avoid legitimate accidents by giving them better visibility into the areas surrounding their vehicles.
Cameras, both inside and outside the cab, can also be used to record progress toward training benchmarks. It’s one thing to insist drivers not text, not follow other vehicles too closely, and not cut turns too short. It’s something else entirely to let them know their performance—with special regard to violations likes these—is being tracked. Most companies have better luck using telematics to reward good driving as opposed to punishing bad, but the important thing is to keep score and get everyone striving to achieve the goal of a better safety record. (And it doesn't hurt to be public about your efforts and goals, say, by posting frequently to social media.)
The other technology that will likely play a major role in reducing insurance costs is automated driving. Existing collision-avoidance features and self-braking systems are already having an impact on safety. As the technology advances, we can expect much bigger improvements. Just how soon self-driving trucks are going take over the industry is, however, an open question. In the meantime, we’re probably going to see a lot more trucks outfitted with systems of cameras and recorders.
And who knows? Maybe those two technologies won’t end up being mutually exclusive.
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