On a roll with truck insurance

TRUCKING is a growing niche. That should be obvious to anyone who has driven on an interstate highway lately, and it also is backed up by statistics from the Federal Highway Administration. According to the most recent information posted on its Web site, there were more than 1,876,000 registered tractor trailers on the roads in 2004. That was up 6.7% from the previous year and 18% from 2000.

Such trends bode well for Interstate Motor Carriers Agency. The agency was started in 1936 and has always specialized exclusively in trucking insurance. I joined the firm in 1979 after working three years as an insurance-company claims specialist and today am a partner and the agency's executive vice president.

We're licensed in 42 states and write trucking insurance all over the country. We have clients of every size and nature. Most of our business comes from midsize fleets–those with 50 to 100 units–but we also provide insurance for trucking companies with as many as 800 trucks. We also write owner-operators, small entrepreneurs who may arrange for their own loads or who lease themselves and their tractors to trucking companies. When they do, they raise important coverage issues for the trucking companies, as I'll explain later.

Most of our business comes from referrals; however, we also obtain clients through various prospecting and marketing activities. Occasionally we advertise in “Transport Topics,” a magazine to which most trucking companies subscribe. We are members of the New Jersey Motor Truck Association, and I also attend conventions held by the American Trucking Association. Sometimes we meet prospects as a result of such association involvement.

We've developed a brochure that includes testimonials from several clients. We use it in periodic direct-mail campaigns to prospects. Those prospects come from a number of sources, including the National Motor Carrier Directory, which is published annually by Transportation Technical Services.

One of the first things we do after obtaining a referral or other lead is to look it up on the Safety and Fitness Electronic Records (SAFER) System Web site (www.safersys.org). 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 weigh stations by state law enforcement agencies or the U.S. Department of Transportation.

These “out of service” reports disclose how often a company's rigs have been taken off the road and why. An above-average out-of-service score usually indicates a problematic risk–but not always. If it turns out that a company's trucks have been taken out of service more for cracked tail lights than for bad brakes or something else that's really serious, we don't automatically write it off as a prospect.

Assuming that a prospect's SAFER report checks out OK, we schedule a visit. Among other things, we want to know what they're doing in regard to safety and vehicle maintenance, and how they screen their drivers. A driver is entrusted with a tractor-trailer rig that easily could be worth $150,000, and he could be hauling cargo valued at $1 million or more–and he's unsupervised once he leaves the terminal. Consequently, we are keenly interested in how trucking companies screen their drivers. We want to be assured that prospective drivers are properly interviewed, and that their motor vehicle records and references are checked. Of course, drivers also must be tested for drug use.

As part of our inspection, we get copies of vehicle maintenance records and safety/loss control procedures. A prospect might have a full-time safety director, but that alone does not persuade us that the trucking company is doing everything it can to prevent losses. We also want assurance that the trucking company's principals are 100% committed to safety. In addition to a safety director backed by management, we like to see incentive programs that reward drivers with gifts or cash for accident-free years. Drivers seem to respond extremely well to such programs. Also, we want to make sure that all trucking accounts have written safety procedures. Committing procedures to paper tends to promote step-by-step compliance with them.

There is no “one-size-fits-all” safety or loss-control system. Consequently, we do more than ask whether a trucking company has a safety manual; we also want to make sure that it is appropriate for that company. For instance, one company may operate strictly as a full-truckload carrier, conveying freight from one point to another. Its procedures would be less voluminous than those of a less-than-truckload (LTL) carrier, which transports goods to docks, where they are unloaded, consolidated and put on other trucks. Those operations create a potential for losses that full-truckload carriers don't have.

Coverages and underwriting

Trucking liability: Trucking companies can require a dozen or more policies. For any given account, we try hard to write them all, since one type of coverage may dovetail with another. The truckers (auto) liability policy is perhaps the most important. Among the data we must collect for underwriters are the number of trucks a prospect has, its radius of operation and the type of cargo it hauls. The prospect's loss history, of course, is of utmost importance, and underwriters also look closely at safety and loss-control procedures.

For large trucking companies, we may suggest a liability deductible. Deductibles, however, aren't used as often today as they were in the hard market, because insurers usually do not offer enough credit for them to make economic sense for truckers.

Excess liability: Almost all of our clients have $1 million in primary liability limits and most buy excess coverage over that. Indeed, we encourage truckers to buy as much liability insurance as they can afford. As both a claims specialist and agent, I've seen too many accidents that wind up having huge price tags associated with them.

When clients ask us how much liability coverage is adequate, we tell them to look to their financial statements–specifically the net worth of their companies, and the value of their fleet and terminal properties. That, ultimately, is what can be at stake in the event of big loss.

The cost of excess liability insurance has come down since the hard market, but it's still not cheap. That, as I explain to clients, is because an increasing number of claims exceed the typical $1 million primary liability limit. Considered in that light, the high cost of excess liability insurance is one of the best justifications for the necessity of increased coverage. We have clients that have been with us for 30 years. They count on us to look after their interests, and we meet them several times a year to discuss such issues as excess liability insurance. If they can afford the additional coverage, in most cases they buy it.

Physical damage: Physical damage insurance on trucks almost always is written on an actual-cash-value basis. Underwriters typically first ask for a list of equipment, including fleet values, but also examine drivers' MVRs, driver-safety procedures and past claims.

Motor truck cargo: In regard to cargo coverage, the first consideration is the type of freight a trucking company hauls. We have clients that transport everything from scrap on up. Our clients include flatbed carriers hauling oversize machinery that may be worth millions of dollars. When gathering data about such truckers, we need to know not only the value of their loads but also whether they use escort services. They map out appropriate routes for trucks, taking into account such factors as the clearance under overpasses, and provide accompanying vehicles.

We've devised our own cargo insurance form, which is used by most of the insurers with which we do business. Essentially, it is a bill-of-lading legal liability form with few exclusions. The property it covers is that described in tariff documents, bills of lading and shipping receipts. The shipments are valued at the invoice amount or, for cargo not shipped under invoice, at cash market value on the date and at the place of shipment. Cargo is covered while “in transit,” defined as a period that starts when goods are in the exclusive custody of a trucker and that ends when they have arrived at their destination and have been transferred to the exclusive custody of a consignee, warehouseman or receiver. To tailor coverage, we attach appropriate endorsements to the form. For instance, a trucking company that hauls refrigerated freight obviously needs coverage for cargo losses stemming from the breakdown of the refrigeration equipment. Carriers that haul steel on flatbed trucks need an endorsement insuring such cargo from losses arising from rust.

Workers comp and OA&H: There's a huge driver shortage in the trucking industry today. Given that, trucking companies are interested in anything that might help keep their drivers happy. One way they can retain owner-operators is by offering them a competitively priced, comprehensive insurance package. Participation is strictly by choice, and owner-operators typically pay for their coverage via monthly deductions from their paychecks. These programs can be enormously convenient for owner-operators. They typically own one truck (or maybe a couple) and spend most of their time behind the wheel or maintaining their vehicles. They rarely have time to look after their insurance as well.

One of the coverages in a typical owner-operator package–occupational accident & health–can create problems, however. Essentially, it is meant to be a substitute for workers compensation insurance. As sole proprietors and independent contractors, owner-operators generally are not required to purchase workers compensation for themselves. But they still need something to cover sickness and job-related injuries. That's where OA&H comes in.

When the coverage was first proposed as a low-cost alternative to workers compensation insurance for owner-operators, a large insurer asked if we would sell its product to trucking companies. I replied absolutely not–unless the carrier also provided a certificate of insurance for a statutory workers compensation policy that would back up the OA&H coverage. This is critical because in some jurisdictions a state workers compensation auditor may deem owner-operators who lease themselves to trucking companies to actually be their employees. When that's the case, an auditor will not be satisfied with the OA&H coverage–unless it is backed up by statutory workers compensation insurance. If it isn't, the auditor may assign the payroll for the owner-operators to the trucking company's workers compensation rating base–possibly resulting in massive premium audits. In fact, a number of trucking companies have switched to us after receiving just such an audit.

Before we write either workers compensation insurance or OA&H insurance for a trucking company, we first research the applicable state law. In certain jurisdictions, the law makes it crystal clear that an owner-operator is an independent contractor, and that if he gets hurt, he's responsible for the costs. In that case, we may conclude that OA&H alone will suffice in a package that a trucking company offers to owner-operators.

But where state courts have ruled that owner-operators are employees, or where the issue has not been resolved, we believe a trucking company has only three options: 1) If the jurisdiction allows, have the owner-operators buy their own statutory workers comp policies. 2) It can cover the owner-operators under its own workers compensation policy. 3) It can offer the owner-operators a package with OA&H–and a workers compensation backup. And the backup must be a statutory policy, not contingent workers compensation insurance, which generally does not pay benefits until a court makes a determination that a claimant is indeed an employee. It can take a long time to resolve that issue. Besides, workers compensation auditors will not accept contingent workers compensation insurance as valid coverage.

OA&H considerations aside, workers compensation premiums for trucking companies are sky-high, creating a major problem for them. Obviously, motor vehicle accidents can produce comp claims, but loading and unloading activities are a bigger cause. When we're gathering information about a trucking company, the first question we ask that pertains to workers compensation is whether drivers load and unload their trucks. If they do, that increases the potential for losses, because such activity can lead to large claims for back or other serious injuries. If loading and unloading is unavoidable, we urge trucking companies to provide relevant training. For instance, daily stretching exercises and proper handling techniques can help reduce injuries.

Pollution insurance: Recently, we have encouraged all our clients to buy pollution insurance, whether they haul hazardous cargo or not. If you read the pollution exclusion in the typical truckers liability policy, you will see it provides no pollution coverage for losses caused by an “irritant or contaminant.” That's a broad term that extends well beyond what the government defines as a hazardous material. So we advise clients to buy pollution insurance. For companies that aren't “haz-mat” haulers, it's relatively inexpensive. We've sold a lot of it lately.

Claims Handling

Years ago, we discovered there was a void in trucking insurance claims expertise. Consequently, we formed our own specialty adjusting company, Carrier Claims Service, in 1987. The company adjusts losses in all lines, including auto liability, physical damage and cargo. It operates independently, working very closely with our insurance market claims people for our own accounts and also adjusting claims for other agents and insurance companies, as well as for truckers that are self-insured to one degree or another.

Working with underwriters

In my 30 years in this business, I've often seen truck-insurance markets that were too hard or too soft to make sense. At the moment, however, the market seems to be just about right. By no means are we saturated with insurance companies that want to write trucks. Those that do, however, know the right questions to ask. Consequently, the better trucking companies are getting the better rates, and those that have not invested money and time in safety and loss control are paying the (higher) price.

Among our liability markets are Sentry Insurance Group (we've been their “Agent of the Year” on several occasions) and AIG. Zurich handles a lot of our haz-mat haulers. We also work with MGAs and wholesalers that specialize in trucking insurance, including Seaboard Underwriters and Transportation Coverage Specialists. For cargo insurance, our primary markets are St. Paul (now Travelers), Hartford and Lloyd's. Lincoln General writes some workers compensation insurance for us, as does AIG and Crum & Forster, although the workers comp market for truckers is quite tight.

When I started in this business, truck-insurance applications consisted of just a couple of sheets. Today I rarely see one that's less than 15 pages long. In completing these applications, some agents simply check the boxes, provide little additional information and shotgun the apps to the marketplace in hope of getting a quote. We take a lot more time with the process. For instance, if we see a couple of large claims on a loss run, we'll get the specifics and then write a narrative explaining to underwriters exactly what happened. If we can cite sound reasons for believing that a claim ultimately will be closed for much less than the amount for which it's reserved, the underwriting–and quote–will reflect that.

For instance, one of our prospects, a municipal trash hauler, experienced a claim that was reserved for an exorbitant amount. The claim arose after a group of teen-agers were hit by a private-passenger car as they picked up trash along a road. Several were killed or injured. The prospect was brought into this lawsuit because one of its trucks had passed the site earlier in the day. Thus, there was a possibility that some of the trash the kids were picking up came from the truck. We documented all this to an underwriter, who discounted the reserve sharply, saying, “You know, you shouldn't be in this claim in the first place.”

For large trucking companies with good records, we sometimes ask for a loss-control inspection prior to quoting. That often improves the quote the client otherwise would receive. Sometimes our clients ask to meet with the underwriter that's quoting their business. We welcome such an attitude, as do most of our insurance markets.

Trucking companies are required to provide evidence of insurance to their clients, regulators and other parties more or less continuously. To meet this need, we have one full-time employee who does nothing but issue certificates. She maintains computerized logs of each trucking company's certificate holders. As policies renew, she updates the logs and issues the certificates in a timely fashion. She also expedites additional certificate requests during the policy period. Such service is one reason that our renewal retention ratio is better than 95%.

An even more fundamental reason for that retention ratio is that we're specialists in trucking insurance. Many agents and brokers are interested in the niche these days. That's not surprising, given the growth in trucking and the large premiums trucking companies generate. But trucking is a unique field, and it demands the full-time attention of the producers, MGAs and, in many cases, even the insurers that serve it. In short, specialization is the key to long-term success with long-haul truckers.

Gary Weindorf is the executive vice president of Interstate Motor Carriers Agency Inc. He joined the agency in 1979, after working three years as a claims specialist for Liberty Mutual Insurance Co. He was made a partner of the agency in 1987. Interstate Motor Carriers Agency has 30 employees and does business nationwide.