Taking care of trucking companies

HANDBALL is a great sport for keeping one in condition, and it occasionally has a significant effect on one's career–or at least it did on mine. During a handball tournament with a friend some 23 years ago, he learned that I was an insurance agent and I discovered that he was the controller of a trucking company. That encounter led to my first truck-insurance account and the beginning of a specialty in which I've been involved ever since. Today, I am the owner of agency that derives about 90% of its $3 million in annual revenue from truck insurance. For the most part, we insure trucking companies rather than individual owner-operators. In size, their fleets range from 200 vehicles to more than 1,000. We provide these clients with all the coverages they need, including auto liability, physical damage, cargo and workers compensation.

Most of our new business comes to us from referrals. When we become aware of new fleets in our territory, we seek information about them from existing clients. For carriers that appear to be good prospects, we may ask our insureds for referrals or introductions.

We are members of several trucking organizations, including the Illinois Trucking Association and the Indiana Motor Truck Association. Their rosters are useful for prospecting, but holding memberships in such associations is no substitute for “person-to-person” marketing and building strong relationships.

Qualifying accounts

The Safety and Fitness Electronic Records (SAFER) System Web site (www.safersys.org) is our primary tool for qualifying prospects. Included in the information available at the site, which is maintained by the Federal Motor Carrier Safety Administration, are the results of inspections performed at state weigh stations, by state law enforcement organizations or by the U.S. Department of Transportation. One thing we check is a prospect's “out of service” scores. They show how often a truck was put out of service following an inspection because of maintenance issues or because of driver issues (e.g., the driver had exceed his allowable hours of driving). The reports also show the national averages, which have been running about 23% for vehicle issues and 7% for driver issues. Obviously, trucking companies with scores below those figures make promising prospects while those with above-average scores need to be looked at carefully or rejected outright.

Submissions

Assuming a prospect checks out satisfactorily on SAFER and otherwise seems qualified, we seek an appointment. If it's granted and goes well, we will make a submission to an appropriate market. We don't believe in “shotgunning” submissions. The person responsible for directing them to the most appropriate market(s) formerly ran a truck insurance company and has great credibility with our carriers. Among the insurers we work with are RLI Transportation, Sentry, Lincoln General and Zurich (via an MGA).

One of the key things underwriters expect is a complete set of financial statements. Underwriters like to see a current ratio (total current assets divided by total current liabilities) of at least 2:1. To operate safely, a trucking carrier must maintain its vehicles; and if it is in poor financial shape, it will be unable to do so.

Most markets also expect loss runs going back four to five years for all lines of coverage sought. They also require a report showing the miles driven by the fleet's vehicles, since that is a key rating base. The figures must be broken down by state, to reflect differences in liability loss experience from one jurisdiction to another. Motor vehicle reports for all the trucking company's drivers will be needed as well.

We also submit information about a prospect's safety and vehicle maintenance programs, which, if favorable, can result in underwriting credits.

Safety measures

Some of our clients have gone the extra mile to promote safety. Perhaps the most striking example is a large trucking company that bought a $250,000 simulator that it uses for driving training. If a company finds its accident rate goes up in icy weather, for instance, it could use such a simulator to prepare its drivers for winter road conditions. This client found the simulator so useful that it loaded it on a trailer and drove it to its various terminals, so all its drivers could be trained on it.

Our clients also use other forms of high tech to reduce their losses. Some use governors to ensure that drivers don't exceed a certain speed, GPS systems to monitor their locations and devices that measure breaking force, which can indicate whether drivers are coming up behind vehicles at excessive speeds.

We encourage all such safety measures and add some of our own. For instance, one way we've differentiated ourselves from competitors is by hiring two safety inspectors, one of whom has worked with DOT. When clients inform us that DOT intends to audit them, our safety inspectors will help them prepare for the audits, be present when they are conducted and help them implement any required action. Our inspectors also conduct “mock audits” for clients whose claims are increasing to pinpoint problems and help them take corrective measures. We provide all these services at our own expense, which is atypical.

Some of the problems that can be uncovered by an audit include spotty vehicle maintenance. Another is the failure of drivers to maintain logbooks properly or to stay within the maximum driving time allowed by law. We work with our clients to correct such problems. Some trucking companies, for instance, offer financial incentives to drivers who turn in their logbooks on time, attend all safety meetings and remain accident-free.

Special case: flatbeds

We encourage additional safety procedures for flatbed truckers, a class in which I specialize. Most of my flatbed clients haul coiled steel for use in the automotive industry. Flatbed drivers must be able to do more than simply operate their vehicles; they also are responsible for ensuring their loads are properly secured, a process known as blocking and bracing. If the load is not secured and immobilized on the proper spot on the trailer, the truck and flatbed trailer easily could tip over, particular on highway off ramps. The drivers also are responsible for properly covering the coiled steel or other cargo with tarpaulins, to protect it from rain or mist. We stress to clients that their flatbed drivers must have proper training. Most of our clients require drivers to have at least two years' experience with flatbeds before they will consider hiring them.

Flatbed drivers also need proper training to minimize workers compensation claims. Unlike other drivers, they need to get up on an open flatbed trailer and block and brace the load. Then they must chain it down and cover it with a tarp that may weigh 50 to 75 pounds. A driver with insufficient training (or in poor physical condition) easily could be injured.

Retaining risk

During the hard market, truckers' liability insurance rates increased so much that many trucking companies implemented or increased deductibles in an effort to keep costs in line. Some of our larger clients now have aggregate liability deductibles as high as $250,000. Insurers will provide reasonable credits for higher deductibles, and we help our clients select a deductible level that makes financial sense for them, given their loss histories.

Some clients save even more on their premiums by accepting a maintenance deductible on their physical damage coverage as well as an aggregate deductible.The maintenance deductible applies to each vehicle (it could be $5,000, $10,000 or some other figure) after the aggregate deductible has been satisfied.

Interstate trucking companies that use large liability deductibles must put up a cash deposit and letter of credit to cover the potential exposure for the year ahead. Insurance companies require such security, since the Motor Carrier Act of 1980 makes them ultimately responsible for their insureds' third-party bodily injury, property damage and environmental restoration claims.

Things to point out

We take pains to ensure that our clients know what they are purchasing. With many opting for higher deductibles, they need to understand how those deductibles work. Some physical damage deductibles apply per unit, which actually means the deductible amount applies separately to the truck and trailer. Other PD deductibles apply per conveyance, which certainly is preferable because then the deductible applies just once to the entire rig.

In regard to cargo coverage for our flatbed clients, I take pains to explain the tarpaulin warranty. Trucking companies hauling steel and other metals must have coverage for damage caused to cargo by rust and condensation. While such coverage can be negotiated, the trucking company will have to accept a tarpaulin warranty, which requires the cargo to be covered properly by a tarpaulin in good condition.

Relationships

As I mentioned before, we stress the importance of developing relationships with prospects–and that certainly goes for clients as well. We make it a point to visit with insureds several times a year. Some calls are primarily social–to take them to a ballgame or to play a round of golf. Sometimes we bring along an underwriter. But in connection with these visits or others, we also often talk with the trucking companies' safety directors to learn of any developing problems and discuss ways to respond to them. Sometimes on these visits, clients have asked us if we know of any trucking companies interested in selling their operations. Occasionally, we have brought together potential buyers and sellers.

We recommend that clients accompany us on visits to renewal meetings with underwriters. If there are any gray areas, having the client on hand to resolve them can be invaluable. One such issue might be the client's exposure base. A trucking company might have 500 trucks–but that doesn't mean all of them are in service at any given time. Some trucks may be down for maintenance or could be idle because of drivers' vacations, illnesses or injuries. Our insured may be able to document to an underwriter that at any given time 10% of the fleet's vehicles are out of service, meaning that the exposure base should be 450 trucks.

There are other ways we try to ensure that clients are paying no more than necessary for their coverage. For instance, we stress that fuel surcharges should not be included in the revenue they report to insurers for the purpose of calculating liability and cargo insurance rates. With fuel costs skyrocketing and surcharges becoming increasingly common, this is particularly important to point out.

We encourage our trucking companies to keep us informed of major developments. If an account were to lose a large client, for instance, it could have a significant impact on their revenue rating base. We might be able to get the change reflected midterm via endorsement, reducing the client's premium. We also can report significant reductions in mileage or vehicle counts midterm.

State of the market

The insurance market certainly is becoming more favorable for truckers. I'd estimate that liability rates are down 6% to 10% from a year ago, and that rates have decreased a bit more than that for physical damage and cargo coverage.

A few years ago, it was extremely difficult to arrange excess liability insurance for truckers, particularly for the first $1 million excess of $1 million in primary coverage. The coverage that was available typically had to be obtained from the E&S marketplace. Now, some admitted insurers, including RLI, are offering $2 million in primary coverage, which can be an excellent selling point for us.

As I hope this article has made clear, insuring trucking companies is definitely a “hands-on” business. Fleets are not accounts that can be written and forgotten about until the next renewal. Rather, they require continuous monitoring. The ability to provide meaningful loss-control service is a must. Above all, this is a relationship business. The ability to develop rapport with, and to instill trust and confidence in, clients and insurers is essential to any agency hoping to make it very far down the road in the truck-insurance niche.