Insurance hikes hit truckers
Haulers here say big jumps in premiums have narrowed already shrunken margins
Linn ParishMay 31st, 2002
Already slowed by high fuel prices and a sluggish national economy, trucking companies say surging insurance rates have slapped a jake brake on their profit margins.
Some Spokane-area trucking companies report that their liability-insurance premiums have jumped anywhere from 30 percent to 80 percent.
Were all feeling the difference, says Dan Ewers, transportation manager at Inland Empire Distribution Systems Inc., a Spokane hauler that has an average of 15 trucks on the road a day. Its something that were all faced with.
Mike Schnurr, a partner here at Moloney, ONeil, Corkery & Jones Inc. who writes insurance policies for trucking companies, says insurance providers have withstood some huge losses from the trucking industry in recent years. In response, he says, They have raised prices very quickly and very high.
Those high rates likely will soften, but its difficult to tell when that will happen, he says.
A national survey conducted by the Arlington, Va.-based American Trucking Associations found that liability insurance rates for truckers jumped an average of 32 percent effective with renewals during 2001. Companies that renewed policies after Sept. 11 were confronted with even higher hikes averaging 37 percent, the survey says.
Premiums for supplemental insurance policieswhich provide coverage in addition to that under general liability policies and are referred to as umbrella insurancesurged even more dramatically, in some cases doubling, the national survey says. Cargo insurance rates also rose.
Those big increases followed earlier premium hikes in 2000, says Richard Curtis, an executive with the American Trucking Associations. The survey found insurance rates rose an average of 17 percent that year.
In Spokane, Trans-System Inc. risk manager Dennis Williams says that companys liability insurance rate rose a whopping 80 percent last year, and its umbrella insurance rose 300 percent.
The big jumps in Trans-Systems premium costs last year followed a 60 percent increase in liability insurance and a 150 percent surge in umbrella insurance the previous year, Williams says.
Ive been asking, and Ive been told to expect at least 20 percent increases this year, he says.
The company, which operates three hauling fleets with a total of about 850 trucks nationwide, saw its premiums soar partly because it was coming off a two-year contract through which it had locked in less expensive insurance rates for 1998 and 1999, Williams says.
Ewers says Inland Empire Distri-butions 30-some percent liability insurance rate increase jibes with that reported in the national study. He says the companys cargo insurance premium increased by a slightly greater percentage.
Washington state requires trucking companies to carry liability policies through which their insurer would pay up to $750,000 in damages per accident. Ewers and Williams both say $1 million policies are considered the industry standard.
Curtis says that its unclear whetheror how muchinsurance premiums will increase for truckers this year.
We arent seeing a softening, thats for sure, he says. You would expect to see some retrenchment, but that hasnt happened.
Driving costs up
Liability insurance premiums vary widely, depending on a trucking companys size, claims history, the types of vehicles in its fleet, the types of cargo it hauls, its average length of haul, and other factors.
In extreme cases, some companies that had paid annual premiums of $1,000 a tractor just two years ago now pay $4,000 per tractor. Consequently, Ewers says, higher insurance premiums have driven up operating costs and narrowed profit margins for companies throughout the trucking industry.
At the same time, fuel prices also have ticked upward in recent months. According to the U.S. Department of Energy, average retail diesel-fuel prices in the West Coast region were $1.38 a gallon as of May 20. Thats about 20 cents a gallon more than three months ago, though its lower than in the spring of 2000, when diesel hit $1.70 a gallon.
Also, because the national economy has slowed, theres an oversupply of hauling capacity in the Inland Northwest. That makes it hard for some companies to secure steady business, which is a problem, Ewers says.
You can chip away at increased costs if you have continuous business, Ewers says. When you have ebbs in the tide, though, its harder to chip away at these costs.
Most trucking companies here arent likely to raise their hauling rates to offset higher costs, because competition for business is intense right now, he says.
Curtis says the increased costs have been tough on small- to medium-sized trucking companies. Nationally, he says, a lot of trucking companies have gone out of business in the last 18 months.
To offset rising costs, both Ewers and Williams say their companies are looking for other ways to save money. One obvious approach is to pack goods more efficiently and haul more cargo on each trip. Another cost-cutting change is to drive more fuel-efficient trucks, although that might require capital purchases, which arent always viable during tough economic times.
While higher insurance rates have hampered many trucking companies, the large increases are following a long period of ridiculously low insurance rates, Curtis says. During much of the 1990s, insurance companies competed for business customers, which kept rates down. He says that those insurance companies had flush reserves, thanks to soaring reserves invested in a generously bullish stock market. Then, they could withstand heavy claims more easily.
As the stock market declined, however, insurance companies have increased premiums to boost revenues, Curtis says.
Schnurr says many insurance providers that offered policies to trucking companies during the 1990s no longer do so. He says, however, that availability of insurance isnt an issue.
Its just a matter of, how much do you want to pay? he says.
Curtis also contends that jury awards in lawsuits have grown dramatically in recent years, and insurance companies have been doling out more money to pay damages, which makes them more wary about their exposure to losses and quicker to hike ratesor to drop customers altogetherafter a claim is made.