For-hire trucking companies have unique risk exposures, so the right insurance is crucial in today’s environment.
In the trucking industry, it’s important to fully understand the nomenclature, nuances between each industry sector and the differing coverages provided by each policy and each insurance company.
“It isn’t an all-encompassing package that is given to every company. Insurance companies are going to want to limit their exposure, so they won’t offer if it’s not requested,” says Scott Nuelle, vice president at ECBM. “If the company is not insured for what management believes it should be, you might not find out until the time of a loss.”
Smart Business spoke with Nuelle about how transportation firms can determine how much excess insurance to buy.
Why is it necessary to buy excess insurance?
The key reason is to protect your assets. Anytime you’ve got trucks on the road, you don’t have as much control of the environment as you’d like. Regardless of your driver safety programs, driver training methods or vehicle technology, an accident could still occur. And the more trucks and miles traveled, the greater the exposure.
The primary layer of a liability policy is usually only $1 million, so excess insurance may be necessary in many cases. Then, if one of your drivers has an accident and is sued, you’ve protected the business.
How does a transportation company know how much excess insurance to buy?
Cost is a big factor in how much excess insurance to carry. Right now, prices are increasing, making it difficult for smaller companies to carry higher limits of liability. But many companies don’t have a choice because shippers may require the higher coverage limits in contracts.
You want to buy enough insurance to reflect the company assets you are trying to protect. Although many businesses have structured the organization to protect assets, you should at least consider what would happen if plans failed.
Then, measure your level of risk aversion. Some people want to completely cover the company and all assets, referring to it as ‘sleep insurance.’ Others perceive the exposure of not buying excess insurance as minimal, gambling on the outcome.
How do recent court cases necessitate the need for more insurance?
Although legal rulings vary by state, when people are hurt, courts generally seek to compensate them. Increasingly when a truck is involved in an accident, trucking companies are paying, whether the driver was at fault or not. For example, if a third party under its own authority is hauling a trailer with your name on it, your company might still have to pay. The exposure could go well beyond what you believe.
What else has changed with the pricing and underwriting?
The general market hardening is having an impact on insurance prices, and there are fewer carriers offering excess coverage. Therefore, even those with good experience are seeing increases because of the decreased number of players in that market.
From an underwriting standpoint, more underwriters are utilizing the compliance, safety, accountability (CSA) scores from the new grading schedule for trucking companies. It measures things like driver out of service, driver safety and vehicle maintenance. As a result, companies must be very active at monitoring and trying to control their scores, which will very likely impact the premium you pay on the excess and primary liability coverage.
If a company has a private fleet of trucks that delivers its own goods, do these exposures still apply?
These companies face similar issues, especially on the liability side. It is more common for the parent company with a private fleet to buy umbrella coverage. However, the umbrella carrier may hesitate to take on the trucking portion, because of the exposure level. Then you would need to get an excess buffer layer to cover the trucking exposure.
The decision of how much insurance to carry is fluid, but you should have a discussion annually with your broker. Don’t be lulled into a false sense of security because a large loss hasn’t happened. Evaluate your exposure, the legal climate and the state of the market to make an informed decision. ●
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