CSA Creates Challenges, Opportunities For Specialty Agents, Trucking Insurers

"Once you're beyond that grace period, you cannot cancel the policy except for certain things," he said, noting that while non-payment is the most common exception, "the second one is material change in exposures," adding that lawyers who speak for his educational programs envision several ways in which that second exception could be triggered as motor carriers start getting monthly safety ratings under CSA.

If an insurer wrote a policy for a motor carrier with a "satisfactory" rating under FMCSA's previous evaluation system (the SAFER system, or SafeStat), "or the motor carrier went in with a rating at a certain level and had no intervention, and during the [policy term] gets an intervention, then the lawyers are saying that that could easily be a material change in exposure," he reported.

"When there is a letter coming from the federal government to your motor carrier that says you are deficient in these safety areas, and the motor carrier doesn't do anything about it, how is that going to float with a jury?" he wondered, assessing the risks for an insurer that stays on the policy.

Asked whether insurers could look to shorten policy terms to be more reactive, rather than canceling annual policies midterm, Mr. Ruke said such actions would be problematic because most policies written for for-hire truckers have MCS-90 endorsements, which operate essentially like a surety bond to protect the public, adding that an insurer has to give 36-days notice to get off of a risk with an MCS-90 on it.

How about inserting policy language that would remove coverage when a driver or a motor carrier has a predefined level of exposure, such as deficient scores in several Behavior Analysis and Safety Improvement Categories (BASICs) of the CSA system, or "unfit" or "marginal" safety fitness determinations?

"Any insurers that would do [that], or put in drivers exclusions, have their heads in the sand, because under federal regulations, even if there is no coverage [under a policy], the insurer has still got to repair the damage to the public," he said, explaining what the MCS-90 guarantees.

In addition, he described what would happen if an insurer's underwriting files had documentation branding a driver or trucking firm with poor ratings as an unacceptable risk. Then the insurer "becomes the expert witness for the plaintiff. So that's not going to happen," he said.

Instead, Mr. Ruke has suggested to the AAMGA that insurers get written commitments from motor carriers they insure–as a part of the application process–"to hire drivers with certain qualities that are spelled out, and to abide by and adhere to all the FMCSA regulations."

He said this language is consistent with statements motor carriers sign off on when they get their DOT numbers, reporting that some insurance carriers are already putting this in their applications, while others are looking into it.

"If [the motor carriers] are not adhering to FMCSA regulations and rules, then you've got material change in exposure, and I think that will hold up with states…better when it's written [on the application] than when it's not," he said.

LAWYER'S PERSPECTIVE

Robert Moseley, an attorney heading the transportation industry group of Smith Moore Leatherwood in Greenville, S.C., said that midterm cancellations are "certainly a possibility, but that's not been the history," suggesting that insurance carriers could have done something similar in the past but did not.

"Even now, motor carriers are rated 'conditional,' and their policies are not cancelled," he noted.

Like Mr. Ruke, he voiced concerns about motor-carrier safety information from CSA becoming available to plaintiffs attorneys.

"For years, we've been moving more and more toward trying the trucking company, and less toward trying the accident. Whenever we have a trucking company that is sued, the way it's presented is there's an accident, and now we're going to look at all the things the trucking company did wrong, could have done differently, technology they could have bought," he reported.

"Judges are letting the doors swing too widely open [by] allowing tangential information" into courtrooms, he added. He gave the example of evidence showing that a trucking company's drug and alcohol testing processes are inadequate being admitted in a case relating to an accident where a driver did not test positive for either substance.

The trucking company winds up having its company history "exposed and micro-analyzed in a way that's just not practical," he said. "People don't run their businesses that way."

In court, plaintiffs lawyers suggest that motor carriers should have gotten certain records or reports, but lawyers get those by sending subpoenas to people, he observed. A trucking company that is trying to decide whether to hire a driver can't compel people to give them documents, he said.

Mr. Moseley noted, however, that the FMCSA launched a new Pre-Screening Employment Program, PSP, in May, allowing motor carriers–with a driver's permission–to electronically access the driver's roadside inspection and crash records prior to hiring.

The PSP is separate from CSA, which limits motor-carrier access to information about driver safety violations to those that impact carrier safety ratings (24 months worth of data captured while a driver was working for the trucking firm).

While some CSA information is also available to the public, Mr. Moseley said insurance companies, in general, "are very slow to take advantage" of available resources. He added that inspection data available in the past has been flawed.

OPPORTUNITIES FOR AGENTS

Bob Hart, a risk control specialist for Northland Insurance in St. Paul, Minn., said that, as was the case under SafeStat, motor carrier information other than accident data will be open to the public, but the names of drivers responsible for violations impacting motor-carrier scores will only be available to the motor carriers.

Even where data is not public, however, the motor carrier can allow third parties to have access to their safety data and ratings, he said, noting that he is already seeing trucking firms hiring safety consultants–"in some cases it may even be insurance agents"–and signing over access to driver data to these third parties.

"Some of our risk control folks have been asked whether they would like to be that third-party person," he reported. "At this point, there are too many unanswered legal questions, so we're not going to be getting access to that data," he said.

Deane Sager, a Northland trucking industry specialist, noted that there are privacy issues involved with specific driver information.

As for potential changes in insurers' underwriting practices that would incorporate CSA information, neither of the Northland specialists, who are not underwriters, could foresee any significant ones on the horizon. "That's largely due to the fact that the process of obtaining information from loss control and from loss runs is pretty good now," Mr. Sager said.

Mr. Hart agreed. While some insurers put more emphasis on data available from government programs, "I think we've always used it as a tool," he said. "It is part of the process, but our underwriting process is already so strong that it's not a critical part," he said.

(Editor's Note: In a ranking of commercial auto carriers based on 2009 direct loss ratios, Northland Insurance ranked among the five best, with its 38.6 loss ratio coming in 16 points better than the industry average. See accompanying chart, page 22.)

Like Mr. Moseley, Mr. Hart also said there were discrepancies in the government data under SafeStat. Under CSA, the amount and quality of data "is going to be so far advanced that it will become a better tool," he added.

"But still [it's just] a tool," Mr. Sager said, adding that he believes CSA 2010 will create opportunities for insurers and agents. Northland's loss control team, for example, through webinars and customer visits, is helping to educate trucking firms about what to expect as the program moves forward.

"Whenever there are problems within their scores, those are what we would work–consulting with the customer–to address," Mr. Hart added, also recommending that insurance agents take the opportunity to have conversations with their trucking company customers to make sure they're taking this seriously.

Agents should make sure customers are asking for help and "not just waiting until they get that first warning letter or until they get information that says they're 'unfit.'"

"They really need to take action now, and for those [trucking] companies that are smaller, and in our case, that risk control might not visit, the only line of defense really is that retail agent knocking on that customer's door," he added.

Mr. Sager said an abundance of information about CSA 2010 coming from trucking industry associations makes it unlikely that even the smallest truckers are unfamiliar with it. Still, the warning letters will catch some firms by surprise, simply because they didn't believe the program would affect them, after having never been contacted or audited under the previous government system.

"It's an opportunity for agents [who] are always looking for a way to add value to their service," Mr. Sager said.

Joe Hutelmyer, president of AmWINS Transportation Underwriters in Burlington, N.C., stressed the need for insurers and agents to be more proactive in helping customers maintain good ratings.

Once a motor carrier gets into the marginal category, it will be flagged for inspection more often, which will mean there's more chance that some negative event will affect its BASIC rating adversely.

"Then it's going to be like a snowball effect. It's going to be harder to get out of it," he said.

"The first thing agents should be doing is talking to all their trucking clients and making sure they know where their numbers are," he suggested.

"These ratings are going to change monthly," said Mr. Ruke, who trains retail agents as well as MGAs and wholesalers. "So what I'm telling retail agents is if they're serious about writing trucking, they need to be prepared to go in monthly to check if their insureds have had an intervention. And if they have, find out what it was for and what they're doing to correct it," he added, stressing the potential legal ramifications for insurers.

LARGER FIRMS, FEWER DRIVERS

Mr. Hutelmyer said the trucking industry itself may change going forward because many small trucking companies, which can't afford to stay on top of their numbers, may end up with "unfit" ratings.

"We're going to see a shift back to the larger carriers employing individual owner-operators as permanently leased operators. But we won't see the small firms like Joe Smith Trucking Company. [Instead] they'll be an owner-operator for Yellow Freight or J.B. Hunt," he said, adding that his own firm will have to readjust to the change after repositioning itself away from competitive fleet business in recent years.

The experts all predicted there will be driver shortages in years to come, with Mr. Moseley pointing to a lack of new entrants into the field and Mr. Ruke citing economic issues that plagued older drivers.

Mr. Moseley said high-school graduates who might have considered driving cannot obtain commercial drivers licenses until they are 21 years old, suggesting that they find alternative careers in the intervening three years. "Even if you are 21, the insurers won't insure drivers generally until they have two years experience," he said.

"We've lost a whole generation of drivers," according to Mr. Ruke, referring to experienced drivers who were in their late-50s when the economy went south. "They lost their jobs or had their trucks repossessed," he said.

"Four or five years later, at age 61 or 62, they're not going to start back up," he said, predicting that trucking companies will have to make up for lack of experience mechanically–by using technology such as on-board electronic recorders to track hours of service, lane deviation equipment and collision avoidance systems.

Insurers could start checking for such technology as part of their underwriting criteria–"even for smaller risks," he agreed, noting that only self-insureds make use of such equipment today.

There was general consensus among truck insurance experts that CSA will also reduce the driver population, even though FMCSA will not be developing safety fitness ratings for drivers.

What is likely to happen is that the largest trucking companies will take a closer look and get better information on drivers before bringing them on board, Mr. Sager predicted. For awhile, drivers who no longer qualify for the best motor carriers will find work with smaller carriers that tend to make less sophisticated hiring decisions, he said.

As CSA continues, however, the hope is that "the really bad apples will eventually not have a place to run to," he added, stressing that CSA's impact will be to reduce the population of poor drivers.

Mr. Ruke suggested that insurers and shippers will play a role in reducing the number of poor quality trucking firms. When information about these truckers is publicly available, it finds its way into court cases holding shippers liable for accidents, and insurance prices rise, he noted.

"If it costs them too much, or they can't buy insurance, then they're going to be put out of business," he said.