From the September-20, 2010 issue of National Underwriter Property & Casualty • Subscribe!

Transportation Insurance Market Crowded Even As Prices Keep Falling

Premiums for commercial transportation insurance business continued falling for almost all types of accounts in the second quarter of 2010, but the number of insurers writing transportation business rose, according to a recent survey of market participants.

The second-quarter survey known as TIPS--an acronym for Transportation Insurance Pricing Survey--from NIP Group, a Woodbridge, N.J.-based wholesale broker and program manager, tallies the responses to questions about market conditions from leading transportation insurance brokers, wholesalers and underwriters representing thousands of account placements, NIP says.

In the second quarter, over 60 percent of respondents reported that more insurers were underwriting transportation business, compared to just about 53 percent in first-quarter 2010 and 50 percent a year earlier, in second-quarter 2009.

"Transportation tends to be a place where excess insurance capacity is allocated. So because it's transitory capacity--it can be utilized to gain premium--it tends to be a place where underwriters will venture when they want to grow their top lines," Richard Augustyn, chief executive officer of NIP Group, told NU.

"When underwriting capacity becomes scarce, they withdraw," leaving only the dedicated transportation underwriters who are it in for all cycles, he continued.

Given these dynamics, transportation market conditions "may be correlated with the direction of the overall [commercial] insurance market. It may be a leading indicator," said Mr. Augustyn, whose firm has participated in the Northeast regional transportation market for more than 20 years through a wholesale division and a retail subsidiary known as Marquis Transportation.

In that respect, the survey brings bad news from the perspective of insurers about the duration of the soft market. Asked to give their opinions of the overall direction of the transportation market, over three-quarters of the respondents said it was "soft" or "softer" during second-quarter 2010.

In contrast, during second-quarter 2009, 40 percent of respondents reported "flat" market conditions, while 37 percent said the market was "soft."

Joe Hutelmyer, president of AmWINS Transportation Underwriters in Burlington, N.C., confirmed that this year's market is softer "without a doubt" than last year's, but he did not see participation from a lot of new players.

"In the past, when we got a soft market, it was strictly tied to supply and demand," said the 35-year veteran of the commercial auto market, recalling that more than 100 carriers flooded the truck insurance marketplace in the late 1990s. When capacity retreated and prices fell in the middle of the current decade, the number had fallen to less than 15, he noted.

Recently, "we've had an influx of a few markets, but not an inordinate amount," he said, putting the number between six and 10, including standard carriers dabbling in commercial auto business. "It is supply and demand, but it's just a little bit different than it's always been in the past," he added, chalking up the difference to the economy.

"There's less business for maybe a few more players," he said, contrasting today's market of roughly 30 participants overall to a peak of 116 in the very soft early-1990s.

There are six-to-10 carriers that have been around for the long haul and are specialists, another five-to-10 that are MGA-driven and also specialist carriers, and then another 10-to-12 dozen that "really don't have any business being in the business," he observed.

Mr. Hutelmyer, who gave an example of historical price changes in an article he authored for NU's Feb. 24, 2003 edition--citing an average liability tractor-trailor price of $5,302 for $1 million of coverage per power unit in 1985--said the same risk would be priced at around $4,600 in 2010.

Even after considering medical and other types of inflation, "the tractor-trailer price is less than it was 20 years ago, which is scary," he said.

He noted, however, that the risk "is a better write" than it was back then.

"The federal government has done a good job" with regulations related to drug testing and commercial driver license requirements, he said, adding that the actual equipment has improved as well.

In fact, insurance industry statistics reveal that in spite of premium declines in recent years, the overall commercial auto industry aggregate combined ratio is still around breakeven. An upward trend in recent years is attributable to expense ratio jumps rather than to changes in loss ratios, which remained relatively flat.

Deane Sager, a trucking industry specialist for Northland Insurance, said the trucking industry over the last three-to-five years has experienced a continuing drop in fatalities "to the point now that the current numbers are record-setting," going back to when they started keeping records on injury accidents involving large trucks. (See http://bit.ly/aSQcN3 for more information.)

Pointing to factors such as more safety technology and more attention to hours-of-service rules, Mr. Sager said that while the down economy may also be a cause, the drop in fatalities involving large trucks is in fact greater than the drop in miles traveled.

Mr. Hutelmyer believes the economy did "shake out some not-so-good operators." Gone are some "that were operating on a shoestring--that couldn't afford to pay better drivers [or] maintain their units," raising the overall risk quality level of the trucking industry, he added.

Focusing on the demand for insurance, Mr. Hutelmyer said the down economy caused the commercial auto market to shrink 25 percent over the last few years, but demand has leveled off in recent months.

QUARTERLY CHANGES

Price reductions also leveled off during the year based on a second- to first-quarter comparison of responses to the TIPS survey.

Compared to last quarter, "it appears that rate reductions are not intensifying," Mr. Augustyn said. So there may be "some mixed signals," he noted, contrasting the quarter-to-quarter comparison to indications of year-over-year softening.

"Rate reductions may have peaked. That is the ray of hope here," he said.

In its reports for various quarters dating back to midyear 2008, NIP graphically reveals the extent of premiums changes indicated by survey respondents for 10 different segments:

  • Trucking Operations
  • Intermodal Carriers
  • Specialized Carriers & Riggers
  • Bulk Transportation
  • Messenger/Courier Services
  • Charter/Tour Bus Operators
  • School Bus Contractors
  • Limousine Services
  • Ambulance and Medical Transport
  • Airport Ground Transportation

The survey summarizes overall premium changes, which include rate and exposure changes together, not just price changes, Mr. Augustyn confirmed.

NU's comparison of the latest survey with prior reports reveals that even segments showing the lowest declines in second-quarter 2010, such as charter buses and airport ground transportation, show greater premium drops than they did in the same quarter a year ago.

For airport ground transportation, for example, one-third of respondents reported no change in premiums last year, while the remainder reported increases in second-quarter 2009. In second-quarter 2010, in contrast, 68 percent reported declines.

Similarly, in trucking segments such as specialized riggers or bulk haulers, respondents reported premium changes mainly ranging from single-digit drops to increases when they were surveyed in second-quarter 2009. A year later in second-quarter 2010, nearly 20 percent reported double-digit declines in these categories.

For those looking for harder market tea leaves in the survey results, however, a comparison to first-quarter 2010 shows more promise. Roughly 30 percent of respondents reported double-digit declines in these specialized rig and bulk transport categories during the first quarter.

Other categories showed similar changes from the first quarter as well. For the trucking operations and intermodal categories, roughly 35 percent of respondents reported double-digit declines in first-quarter 2010, with all responses averaging to declines in the 8-to-9 percent range (by NU's calculation). One quarter later, declines averaged 6-to-7 percent, and only one-quarter of survey participants reporting double-digits drops.

SIZE STILL MATTERS

Looking at the business by account size, the NIP survey reported bigger price decreases for larger accounts during the second quarter--a relationship consistent with prior reports.

In second-quarter 2010, only 28 percent of market participants reported double-digit premium declines for small commercial transportation accounts (those with less than $75,000 in premium), while nearly 42 percent reported such declines for medium-size accounts ($75,000-$250,000). For large accounts (more than $250,000), 56 percent of survey respondents reported double-digit declines.

Mr. Hutelmyer told NU that his firm, which focused on fleet accounts historically, moved to non-fleet business in recent years because fleet pricing just became too competitive. "We lost all our renewals," he said--reporting, however, that his firm successfully transitioned to smaller accounts pushing policy counts up 500 percent.

"We're growing," he said, reporting premium growth of roughly 3 percent.

AmWINS underwriters with 35 years experience writing truck fleets are now underwriting one- and two-unit operations, "but it's paying their salaries," he said.

He also reported that non-fleet business is better business from a loss-ratio standpoint. Revealing results of an internal study of fleet and non-fleet results over a 20-year period, he said that fleet business was priced roughly 15 percent cheaper than non-fleet, and the non-fleet loss ratio was around 10 points better.

"You can get your price" on non-fleet business. In addition, there are more variables involved in underwriting fleet business than when writing a single operator with one truck and one driver to check out.

In spite of risk-engineering efforts on fleet business, a fleet owner can suddenly pick up a new contract and add 10 drivers, or pick up a driver on a trip-lease to a haul a particular load, potentially changing the overall quality of the risk.

At NIP Group, Mr. Augustyn identified the intermodal segment of the transportation market as an area of opportunity for the future. "We're certainly in an import-export economy," he said, explaining why this segment, relating to the movement of freight vehicles or containers on trucks between other modes of transportation (ship, railroad), should grow over time.

CARRIER PERSPECTIVE

Asked to identify areas of opportunity in the transportation market at Chicago-based CNA, John Baskam, vice president and leader of the carrier's specialty transportation unit in Atlanta, said he believes the best opportunities come from quality specialists or distribution partners.

"It's all about your distribution, and from there, it's amazing what kind of opportunity flows," said Mr. Baskam, who spoke to NU with John Angerami, senior vice president of CNA Select Risk (the excess-and-surplus lines operation of CNA).

Together they described the carrier's continuing commitment and significant investment in transportation business and its efforts to identify quality wholesale broker partners and adequately priced business.

Earlier this year, CNA Select Risk completed the construction of a "center of excellence," Mr. Angerami reported--referring to a centralized facility, led by Mr. Baskam and staffed by underwriting, risk control and claim services professionals who specialize in transportation industry risks.

"Even though we have that 'center of excellence,' we choose to be less than aggressive when it comes to writing new business and competing on price," Mr. Angerami said. Instead, "we sit [and] look for the rare opportunity where we can write a risk on our terms," he added, vowing to keep the facility in good condition until the market cooperates and prices rise.

"We'll be around when others aren't," Mr. Angerami said, repeating a message he said he delivers to producers.

Likewise, Mr. Baskam emphasized the firm's longevity, financial strength and specialized services as central to the insurer's message. "We have that value, so we want to flaunt it," he said.

While the two men reported that CNA's nine-year uninterrupted commitment to the transportation area has included recent expansions into new market segments, such as charter buses and limousines, Mr. Baskam said more than half the prior distribution force has been eliminated.

"One of the commitments of Select Risk Transportation is to deal with the specialist that understands value and quality business," Mr. Baskam said, noting that the carrier, working with a limited distribution model, has culled distributors who were not on board with the value-over-price proposition.

The intent of reviewing the distribution partnerships was not to get rid of distribution, even though that was the outcome. Instead, it was to focus on those that made sense, he said, describing quality producers as specialists motivated to do business on CNA's terms.

"If someone comes and says I've got 30 markets, we'd love to add you, then that's probably not someone who is going to fit in. They may control some good business, but they but don't care about the value of your operation," he said.

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