Tank Truck Carriers Contending With Rising Insurance Premiums

June 1, 2000
THE TANK truck industry is facing an increase in insurance premiums this year estimated at 10% to 20% for cargo and liability coverage. In some isolated

THE TANK truck industry is facing an increase in insurance premiums this year estimated at 10% to 20% for cargo and liability coverage. In some isolated instances, the increase may be as much as 40% to 100%. Further, a few carriers with questionable safety records may not be able to find an underwriter.

Kate McGinn, vice-president of ECS Underwriting Inc, Exton, Pennsylvania, points out that premiums are heading upward because of several factors across the insurance industry, including record low premium growth, increased catastrophic losses, and declining investment income. She and Jeff Magner of Premiere Transportation Agencies, Indianapolis, Indiana, discussed the insurance market at a National Tank Truck Carriers Tank Cleaning and Safety conference in April.

"The insurance industry pays out almost as much money as it takes in from the trucking business," she says of premium income and claims payments, respectively. "These circumstances are going to leave transportation companies grappling with the increased cost of insurance, fewer insurance carriers willing to provide the coverage because of likely further market constriction, and tighter underwriting controls from those carriers willing to provide it."

Market Size Magner said that of the $13 billion market for transportation insurance, the tank truck industry represents about three percent. "Tank trucks are the safest in the industry," he said.

Nevertheless, he predicted premiums will continue to rise for the next two to three years and contracts will be more difficult to negotiate. "Medical costs are escalating far too rapidly," he added, speaking of costs for hospital, drugs, and professional care.

On the other hand, he expects consumers to eventually force insurance companies to operate more efficiently by making demands for lower costs to them.

With all of the insurance industry activity swirling about them, trucking companies reviewing short-term projections have plenty of reason to be concerned. And what really has managers concerned is that they've trimmed about all the expenses they can from their operating budgets.

Absorbing insurance premium increases will be difficult, if not impossible, in this year's fiscal environment, say industry representatives.

Mike Stark, president of Enterprise Transportation, Houston, Texas, says Enterprise is covered through an umbrella provided by its parent company, which is self-insured. "A lot of our competition is under self-insurance programs," he adds. "Premium increases will depend on each company's exposure.

"The industry will have to ask for rate increases to cover higher premiums, but whether the shippers will respond or not is another question. We applied one million dollars in a wage increase for our drivers in December 1999. We asked our shippers if they would share in that, but they refused."

Carriers are caught in the squeeze between what they can obtain through revenue and the costs required to meet regulations. All motor carriers must carry a minimum of $750,000 in bodily injury and property damage liability. Hazardous materials coverage is $5 million. In addition, there must be coverage for environmental damage.

Most fleets increase their coverage to a minimum of $1 million liability insurance. Cargo insurance varies widely with the type of load and is usually dictated by the shipper, according to information from Transport Topics.

"It's getting really tight to operate," says Tom Voelkel, executive vice-president at Dupre Transport Inc, Lafayette, Louisiana. "Variable costs are rising faster than you can grow your business. We are looking more at our value of service to our customer. We have to go up on the price.

"Carriers have already had to address efficiencies, and they did, but there is not much more they can do."

Shipper Inefficiencies On the other hand, Voelkel thinks shipper inefficiencies are passed down to carriers and need to be addressed.

Steve Rush, president of Carbon Express, Wharton, New Jersey, agrees. He points out that coordinating product drop-off times sometimes can be costly. He cites two examples that would have required a wait of days with no compensation, one for a van delivery and another for a tank trailer shipment to Canada. He adds that the tank truck industry is less likely than truckload carriers to be subjected to similar predicaments, but that they do occur.

"All of our shippers are extremely resistant to rate increases," says Brian K Wood, vice-president of TransWood Inc, Omaha, Nebraska. As a result, insurance increases last year had to be absorbed by TransWood. Although health insurance premiums remained level for about four years, they rose 25% this year.

"Our deductible is fairly high and we raised it 30% for health insurance," he adds. "Insurance was a leading topic of discussion last fall, and then the fuel crisis took front and center."

The concern in Houston, New Jersey, and Omaha is shared throughout the United States and hits small companies as well as large. On the West Coast, Mark Dillow, director of safety for Food Express Inc, Arcadia, California, said his company had recently received a 15% premium increase. "Everything is going up," he said.

The company is working on limiting its losses through a multi-level safety program that focuses on proactive training. Although some positive response was received from shippers for a surcharge because of fuel cost increases, they aren't likely to accept one for increases in insurance premiums, he added.

In Fargo, North Dakota, Charles Monroe, general manager of Colby Transport, says, "We feel up until now we have had good premiums. All we can do now is raise our rates and hope we get work. It's a no-win deal."

What really aggravates Monroe about the insurance increase is that Colby Transport, an asphalt hauler with 28 tank trailers, has won nine annual safety awards in as many years from the state trucking association.

"Nevertheless, our insurance premium increased 15% on gross receipts and 10% on physical damage," he says. "Last year, we had no vehicle accidents - 750,000 miles and no accidents."

Driver Shortages Complicating the situation even further is the impact the driver crisis, courtroom expenses, and diesel prices have on the insurance situation. Companies are stymied with trying to hire and retain qualified drivers. Putting inexperienced drivers behind the wheel, even those that are well trained, increases the potential for accidents. That is a risk tank truck carriers can't afford to take, particularly because the majority of them are involved in transporting hazardous materials. Even when their driver selection process conforms to insurance industry standards, they may not be able to find enough qualified drivers to keep all their trucks on the road.

Litigation is another concern in any operation. Lawsuit settlement expenses covered by the insurance industry eventually impact the cost of premiums for the transportation industry. "This is a big area," says McGinn. "A million-dollar settlement is nothing. The legal community is out of control."

She points out that when stock investors see the dollars going out for settlements, they are less likely to invest in insurance companies, which reduces the capital pool.

For some time, insurance companies have been able to rein in premiums. Not since the mid-1980s have carriers considered the situation a crisis. In the interim, premium costs fell so that the expense over the past few years was lower. During that time, premium growth was on the rise, claims were not as costly, and investors were not as attracted to technology stocks as they are today.

Now, carriers are having to juggle the premium hikes as well as several other escalating charges. Estimates indicate that insurance costs total about 3% of revenue.

"The cost of insurance is bad enough and then diesel is up 30 to 40%," says Monroe. "It's a double whammy this year. I don't think we can get any more money for our work. It's a nightmare just trying to bid. We don't believe in a surcharge, so we try to build the increase into our rate."

Traffic Implications Meanwhile, there are more trucks on the road and the speed limits are higher than they used to be, both increasing the risks of accidents. If an hours-of-service proposal announced April 25 by the Department of Transportation (DOT) and the Federal Motor Carrier Safety Administration (FMCSA) goes into effect, industry spokesmen predict even more trucks will be required to handle the transportation needs of the current economy.

The hours-of-service proposal is based on a 24-hour daily cycle and a seven-day weekly cycle, according to FMCSA. It requires a period of 10 consecutive hours off duty within each 24-hour cycle, and two hours of additional time off in each 14-hour work period within each 24-hour cycle.

Today, McGinn urges carriers to pay close attention to their driver selection process, to make a commitment to be an employer of choice where drivers will want to work, and to keep a closer eye on safety policies and practices to minimize any future losses.

Voelkel says Dupre has introduced a behavior-based safety program and is beginning to see positive results from it. The proactive program is designed to raise employee attention for risk assessment in the workplace.

"They learn that the way they behave may contribute to an accident," he says. The goal is for employees to recognize inherent risks in their behavior on the job and counter them before an accident can occur.

This program and others like them used by carriers can have a dual purpose. A quality safety program can help to keep insurance premiums in line while demonstrating the company's capability to the shipper. In addition, if companies want to try to pass some of the premium increase on to the shipper, Voelkel recommends that they have a well-thought-out presentation.

"Companies have to manage safety information and present the information in an organized and intelligent manner," he says. "In addition, it should be organized so that shippers can share it with their customers so that the customers know why shipper costs are rising. We need to move from a next-load adversarial relationship with shippers to a true partnership."

About the Author

Mary Davis