What To Do About the High Cost of Insurance for Transportation and Logistics Companies

You run a business in the transportation and logistics industry. You need a high-quality insurance program. Insurance rates are rising, particularly for Commercial Auto and Property policies. What are you going to do? 

Grit your teeth, pay your premiums and hope for rates to come down? Or take action to contain the cost of managing the risks inherent to your line of business? 

As Alera Group forecast when we released our 2024 Property and Casualty Market Outlook last December, multiple factors have driven up the costs of claims for insurers and rates for transportation and logistics businesses. Foremost among those factors: exorbitant jury awards in liability lawsuits, soaring costs for vehicle repairs, and catastrophic weather and climate-related events that have created outright crises in many states’ Property Insurance markets.

Current market conditions for insuring travel and logistics businesses vary significantly based on line of coverage — 

• Stable to favorable across the board in terms of rates, availability, capacity and underwriting scrutiny for Cargo, Cyber Liability and General Liability Insurance; 
• Favorable across the board for Workers’ Compensation; 
• Largely stable but with still-increasing rates for Commercial Auto, Property and Warehouse Legal Liability coverage.

But, as Risk & Insurance magazine reported in the September 8 article “Tackling Soaring Trucking Insurance? How Improved Recruitment, Operations and Telematics Can Help,” businesses aren’t helpless in the face of insurance challenges. There are steps you can take, technologies you can deploy. And working with a good insurance broker most certainly helps.

Here’s a closer look at three major insurance challenges for transportation and logistics companies, along with practical steps you can take to address them.

Commercial Auto Insurance

In early September, Alera Group released our 2024 Property and Casualty Market Update, a follow-up to our annual Property and Casualty Market Outlook based on findings from Q2 and July 2024 policy renewals. Here’s what we had to say about the deteriorating market for Commercial Auto Insurance:

• “Market conditions are hardening.
• “Rates are escalating and expected to rise through the remainder of 2024.
• “The average price increase at the end of Q2 was 9% compared to 9.8% in the first quarter. Projected price increases for the second half of the year are in the 7%-10% range. Businesses with challenging loss histories and larger fleets can expect double-digit increases and some coverage restrictions.
• “Rising costs are the result of significant losses in this line of coverage. Factors driving losses include nuclear jury verdicts, high vehicle-repair costs, distracted driving and a shortage of experienced truck drivers.
• “Anticipate some reductions in capacity. States where there is limited capacity include Texas, Florida and California.
• “Expect underwriting scrutiny and more restrictions. Carriers look closely at insureds’ driver training programs; hiring, reward and disciplinary policies; and fleet maintenance programs. More insurers are requiring in-vehicle driver monitoring systems and annual MVR reviews.”

Commercial Property Insurance

Catastrophic weather and climate-related events continue to drive Property Insurance rates — residential as well as commercial — but the news isn’t entirely bad for this coverage. From the Market Update:

• “Conditions are improving. Buyers are seeing more moderate price increases, better placement terms and increased capacity in many parts of the country.
• “The average price increase for Q2 was 8.9% compared to 10.1% at the end of the first quarter. Some businesses considered “best-in-class” in non-catastrophe-prone areas are seeing no increases. Insureds with high-risk operations, weak risk management programs or locations in disaster-prone areas continue to face double-digit price hikes, more restrictive coverage terms and limited availability.
• “The industry still faces headwinds in Property Insurance. In the first quarter of 2024, insured losses were $17 billion. This represents a significant increase from the median of $12 billion for this period over the past 20 years. Losses were primarily the result of what the industry calls “secondary perils,” which include severe convective storms, winter events and flooding. The National Oceanic and Atmospheric Administration (NOAA) is projecting that warm land and sea temperatures will lead to an “above normal” hurricane season along the Atlantic and Gulf Coasts.
• “There is more capacity available. Current rate levels are encouraging reinsurers to grow their business, and new players are entering the market.
• “Insurers want to grow but are selective about the businesses they will write. Updated sprinkler protection, compliance with risk control recommendations and up-to-date property values are key underwriting considerations.
• “Parametric coverages continue to grow in popularity. Industry data indicates that parametric submissions are up 500% over last year. Parametric solutions are a type of insurance that covers the likelihood of a loss-causing event, such as a hurricane or earthquake. Instead of compensating the insured for the loss, there is an upfront agreement to make a payment upon the occurrence of a covered event meeting or exceeding a predefined intensity threshold.”

Warehouse Legal Liability Insurance

As reported by Law.com in the August 2024 article “Warehouse Liability: Know Before You Stow!,” the COVID-19 pandemic changed consumer buying habits, leading to increased manufacturer reliance on third-party logistics and warehousing to ensure timely delivery of their products.

“With this increasing need to use third-party warehouses,” Law.com noted, “manufacturers and distributors should take a moment to refresh their understanding of warehousing law and liability.”

And they should protect themselves with Warehouse Legal Liability Insurance, which, as defined by The Hartford Insurance, “helps cover a business as a bailee, or in other words, a business entrusted with the property of another, for direct physical loss or damage of property that happens during storage, cross-docking, packaging, labeling or other services provided by the bailee.”

The increase in warehousing has led to a greater number of claims, which in turn has fueled rate increases. An insurance broker who specializes in logistics and transportation, including trucking, is invaluable in securing the right coverage at the right price for you.

Next steps

Here are 11 steps for addressing your insurance challenges and getting the best coverage available in the current property and casualty market:

1. Talk with your broker about your coverage, your insurance carrier and what information will be most important to provide underwriters for your next renewal.
2. Be prepared to test the market by exploring options for improving your coverage program.
3. Make your broker part of your business-planning team. So many aspects of your business involve insurance; it only makes sense to keep your broker informed on your plans and important developments to consider all risks and what you need for coverage.
4. Document and demonstrate your risk management policies, procedures and history. Best-in-class organizations typically get the best available policy rates and terms.
5. Hire wisely and train well. Like many industries, transportation companies — especially those in trucking — are having a difficult time attracting and retaining qualified labor. The necessity of hiring less-experienced drivers makes it all the more imperative that you screen and monitor motor vehicle records (MVRs), provide state-of-the-industry training and make use of telematics. Another benefit of providing a quality driver-training program: It helps attract, develop and retain talent.
6. Keep your property values up to date, and adjust coverage accordingly. Replacement costs tend to be greater than assessed property values. As noted in the Alera Group Market Update, “Without accurate building valuations, your business will come up short in the event of a loss.”
7. Be aware of policy differences and exclusions. Even for similar policies, terms and conditions often differ. Policies covering businesses in the transportation and logistics industry have specific policy exclusions about what can be hauled, for example. Don’t assume you’re covered.
8. To manage insurance costs, prioritize. From the Market Update: “Work with your broker to determine which coverages are essential, which losses you can afford to absorb and how alternative strategies can help you manage risk.”
9. Use your insurance program as a selling point. Knowing you’re comprehensively insured not only provides you with peace of mind but also instills confidence in clients and prospects, enabling you to gain better-paying loads. Better-paying loads offset increased insurance rates and other costs, and allow you to thrive amid a hard market.
10. Explore alternative solutions. With the market evolving, now is a good time to consider restructuring your insurance program, beginning with a reassessment of your risk retentions, claim deductibles and coverage limits. Depending on your appetite for risk, you may find that Captive Insurance or a risk-purchasing group is the best solution for you.
11. Get the full Property and Casualty Market Update. To obtain your copy, click on the link below.

GET THE UPDATE

About the author

Paul Bondar
Managing Partner
Bondar Insurance Group, An Alera Group Company

Paul Bondar is the founder and Managing Partner of Alera Group’s Bondar Insurance Group office, which offers multiple insurance services, with specialty expertise in solutions for the trucking industry. Solutions include coverages such as Cargo/Freight, Trailer Interchange, Property and Warehousing. 

Contact information:

paul.bondar@aleragroup.com