Chart of the Week: Insurance Expense for Dry Van Carriers, Unsafe Driving Violations – USA SONAR:INSURE.VCFOO, VIOUSD.USA
According to the Federal Motor Carrier Safety Administration (FMCSA) — the branch of the U.S. Department of Transportation (DOT) responsible for governing commercial truck operation safety compliance — violations for unsafe driving are down 2% year-over-year through November. Over the same time, insurance costs as a percentage of revenue reported by the Truckload Carrier’s Association (TCA) members have risen almost 10%.
To get a clear picture we would need to see the total revenues but looking at the past five years’ worth of insurance cost data there is a clear upward trendline from 2015. There was a moment of decline in mid-2018 as revenues are assumed to have surged due to the hottest summer peak season in over a decade. Insurance costs quickly pick up where they left off by late 2018 as carriers put more money aside for a consistently increasing amount liability.
Insurance costs are primarily a combination of carrier liability insurance premiums and reserves — money earmarked for the future cost of an incident that is not paid to an insurance provider — spread over the course of the year. There are several different types and layers of carrier insurance, but we will stick to the liability portion here.
Insurance premiums, like the ones paid for automotive, are calculated by insurance providers by figuring out the likelihood of a carrier having an incident and how much that accident may cost. The key component to the calculation is the second part, the cost of the incident.
Looking at the FMCSA data, unsafe driving violations fell for the first time since 2013-14. Looking at various data sets such as the Cass Freight Shipments Index and FreightWaves Outbound Tender Volume Index (OTVI) volumes fell by around 3-4% through November of 2019, which could account for some of the lower violation count. The issue with this is that unsafe driving violations do not appear to have much if any connection to freight volumes over the past 7 years. Freight volumes increased almost 3% from 2013 into 2014 according to Cass, while unsafe driving violations fell almost 14%.
Of course, the behaviors of the enforcement agency may not be consistent from year to year as procedures change, but part of the insurance calculation is dependent on data gathered by the FMCSA, regardless of their enforcement practices.
As mentioned, the biggest reason for increasing insurance costs lies in the increasing amounts awarded against carriers who have severe incidents. There have been several “nuclear” verdicts against commercial carriers over the past few years. A nuclear verdict is when a jury awards a settlement over $10M. Most jury trials end up finding against the trucking companies as there is not an abundance of sympathy for truck drivers outside of the transportation community. Even with declining amounts of fatal accidents involving commercial vehicles — down 11% y/y in 2019 — insurance costs are on the rise as settlement amounts for those that end up in court balloon.
The cost of life is immeasurable, and safety should be at the forefront of everyone’s mind, especially when operating an 80,000 pound vehicle. The impact of these verdicts, however, will become apparent in the coming year as more carriers go out of business and less operators enter the market due to higher costs.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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Thagearjammer
Breaks my heart to read these comments. Wish you all good health and prosperity! you no their ain’t no easy run!
Mike
Installing a stop watch on the dashboard of an 80,000 lb vehicle is for safety? LMFAO!!! I recently parked my authority, could no longer afford the insurance. I was told to expect a 30% to 100% rise in my premiums on the first of the new year, I did not wait around to find out, and found an outfit to lease on with. I am a one truck operator, I drive and own the truck outright, and have been out here for 31 years, safely, no tickets in many many years, and never an accident, knock on wood. I have all of the endorsements on my license, TWIC, etc, I am what they say, squeaky clean, and want to stay that way.
When speaking with my insurance agent, they are nationwide, I was told that in the past two years, starting in 2018, accidents and fatalities involving big trucks are up substantially. She also informed me that there are only two insurance companies left out here that will underwrite a policy, two. In other words, the actual insurers are having issues, as the costs of the claims are going through the roof. You will know that if you own an EPA truck, as they are neither inexpensive to own, much less repair. I unfortunately own one, and I can completely see the insurance companies side on this.
We have a real problem here Houston, and it is going to go critical in the coming months if something is not done. And knowing the FMCSA, they will tighten regulations on the drivers, again, and the opposite of the desired results will be the outcome. You know, you cannot fix stupid. Me, I’m parking the truck, I have had it.
Elvis Durant
I parked mine the day before Thanksgiving. Truck broke down (possible engine overhaul) and to be honest, not worth the investment. Been Extremely lucky with insurance cost especially living here in New Jersey. But the way rates, shippers, brokers, DOT regulations, etc are behaving these days, not worth a penny staying in the trucking industry at all…..Time to move on!
Mike
I’m headed back up to the oil fields, already in the hiring process. It is a 9 to 5 job that pays very well. I’m single, divorced, kids are all grown up, etc. Like you, truck went down, second in frame, last shop installed all the wrong parts if you can believe that. I just in framed the motor, again, this time I did it myself at a buddies house, man she is running good. I am just sick. But, like you said, this industry is not worth the time or effort.
Steve
People in Canada including myself have got their feet so damaged that they been unable to work. The E logs have a very high human cost. The government and the insurance companies new rates just reflect those extra costs. The solution is not to bring in more drivers but put a plan on place to make sure the truck drivers here get the medical help and care they need.