Insurance stands as one of the primary expenses for carriers, trailing only behind fuel and maintenance costs. The premiums associated with carrier insurance exhibit considerable variation, influenced by factors such as years of experience, average cost of goods transported, and driving records. However, one aspect beyond carriers’ control is the impact of insurance rates based on the state where they are domiciled.
Carrier insurance is subject to regulation at the state level, and while the Federal Motor Carrier Safety Administration (FMCSA) mandates liability insurance for all carriers, commonalities exist in the rules across states. Jackson Alexander, the Executive Vice President of Sales at Reliance Partners, highlighted the three requirements necessary for insurance companies’ rates to gain approval.
“First, rates must be adequate, meaning insurance companies have to charge enough to collect enough premium in order to be able to pay out claims,” Alexander said. “Second, rates must not be excessive, meaning rates can’t be too high to where insurance carriers are earning excessive profits. Finally, rates cannot be unfairly discriminatory, meaning you cannot charge higher rates based on race, gender, etc.”
Despite these foundational similarities, significant disparities arise due to varying rules and regulations from state to state. Recent legislation in New Jersey, for instance, mandates a minimum liability insurance of $1.5 million for carriers domiciled in the state. Such laws, along with increased coverage minimums in other states, contribute to notable rises in insurance rates, intensifying discrepancies.
The domicile of a carrier emerges as a crucial factor influencing whether a state experiences relatively higher or lower insurance premiums for motor carriers. Furthermore, states like California, New York, and Louisiana, known for their plaintiff-friendly legal environments, often award larger payouts in trucking-related lawsuits. Consequently, insurance commissioners in these states necessitate higher rates to ensure adequate premium collection for claims payment.
“Individual loss data for the motor carrier is arguably the most important factor when insurance carriers determine how much they are going to charge,” Alexander said. “CSA [compliance, safety, and accountability] scores is another one that is extremely important. Each ‘alert’ a motor carrier has in one of the seven BASICs [Behavior Analysis and Safety Improvement Categories] can cost on average an additional $500-1,000 in insurance premium per truck per year.”
Despite these challenges, carriers can implement strategies to mitigate escalating costs. Selecting the right drivers, ensuring proper equipment and technology, such as telematics and cameras in trucks, and emphasizing safety measures can help restrain potential rate increases. Additionally, carriers have the option to raise deductibles, shifting more risk onto themselves and potentially reducing premiums.
Looking ahead, the trajectory of insurance rates will hinge significantly on decisions made by each state’s lawmakers and regulatory agencies. The trend of states, like New Jersey, requiring carriers to increase liability coverage to $1.5 million may continue, contrasting with the federal minimum set by the FMCSA at $750,000. If more states adopt such measures, it could lead to an increased exodus of motor carriers from an already financially challenging market.
Source: Freightwaves
