Truckers confront higher insurance costs
Staff -- Logistics Management, 1/1/2002
Shippers should prepare to pay more for truck transportation later this year as motor carriers attempt to recover some of their increased insurance costs.
Fallout from the Sept. 11 terrorist attacks exacerbated existing rate pressures in the market for trucking insurance, say analysts. Reinsurers that cover most of the losses of primary insurance companies reportedly suffered the largest single financial thrashing in history after the destruction of the World Trade Center in New York. "The reinsurers took one nasty hit on Sept. 11," says Joanne Fineberg, president of Columbia Underwriters Inc. in West Columbia, S.C., an insurance wholesaler that provides coverage to trucking fleets and independent drivers in the Southeast. "They are going to make it up everywhere they can."
Even before September, insurance industry executives say, the faltering economy already was putting pressure on coverage rates for motor carriers. During the stock market boom, a multitude of companies entered the market for trucking insurance, which pushed down premiums. Those companies were able to charge lower insurance rates because they could reinvest the premium money in the stock market to earn their profits. As the economy faltered and the stock market deteriorated, they began pulling out of the business of covering motor carriers. "Now that the stock market has tightened, they can no longer make the money off the stock market," observes Fineberg. "They needed to clean out that book of business."
Their departure creates some difficulties for interstate truckers, which must maintain a certain level of insurance to operate. Federal law requires general freight motor carriers to carry a minimum of $750,000 in coverage. Hazardous materials transporters must carry between $1 million and $5 million in coverage, depending on the type of shipments they haul. On top of that, most shippers require general freight truckers to carry a $1 million liability policy and hazardous materials haulers to maintain $5 million in coverage. "Carriers can't operate without insurance," notes Cliff Harvison, president of the National Tank Truck Carriers Association in Alexandria, Va.
Given the current level of anxiety about security, hazardous materials haulers may be particularly hard hit by insurance rate hikes. Robert Baldwin, a principal in the insurance firm of Baldwin Sadler in Audubon, Pa., which insures hazmat truckers, predicts that rates for carriers that generate some profitability for the underwriter will increase another 20 to 30 percent. For those hazmat haulers whose business is deemed unprofitable, however, he foresees rate hikes of between 50 and 70 percent.
If the cost of insurance rises for motor carriers, then shippers can expect to pay more to move freight. "The truckers will have to pass some of that expense through," says Madison Macon, a vice president of marketing at Carolina Casualty Insurance Co. in Jacksonville, Fla., which underwrites more than 4,000 trucking policies nationwide.
Harvison, meanwhile, says hazardous materials shippers can expect a 7- to 10-percent rate hike to cover the costs of increased insurance premiums for hazmat haulers.
In addition to higher freight rates, shippers may also see some carriers fall by the wayside if they can't obtain insurance coverage. Fewer competitors and higher costs may signal an end to the low freight rates shippers have enjoyed during the past decade. "The Wal-Marts and Kmarts have had their way with the trucking industry," says Macon. "But the price of trucking is going up. Where it's going, I don't think anyone knows."
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