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How a $1.25 million insurance liability hike may affect owner-operators

Proposed rate increase in Congress would be “huge financial obstacle” for small-fleet truckers, says insurance expert

(Photo: Jim Allen/FreightWaves)

A push by lawmakers to raise truck liability insurance for the first time in 40 years has advanced further than ever in Congress and the resulting rate increases would hit small trucking companies the hardest, according to an insurance expert.

The provision included in the Moving Forward Act, which the U.S. House of Representatives passed on July 1, raises the minimum coverage level for general freight from $750,000 per accident to $2 million. It would be adjusted every five years to account for inflation based on Bureau of Labor Statistics data.

The minimum coverage cap is $2.9 million less than what was proposed in a standalone bill introduced last year, known as the INSURANCE Act, which called for hiking minimum coverage to $4.9 million. But it still represents a $1.25 million jump in coverage — or 166% — that many owner-operators would not be able to afford, according to Thom Albrecht, CFO and chief revenue officer at Reliance Partners Insurance.

“It would be a huge financial obstacle to overcome,” Albrecht told FreightWaves. He explained that fleets in general can take steps to help lower insurance premiums, such as investing in technologies like lane departure warning systems, collision avoidance, active braking and forward-looking cameras.

“However, in terms of micro fleets [10 or fewer trucks], their lack of scale, along with cash flow issues, will keep most of them from the aforementioned investments. So the 166% increase in minimum liability coverage will disproportionately hit them, along with many fleets with 11 to even 200 or 300 trucks.”

In a 2013 report on carrier liability responsibility, the Federal Motor Carrier Safety Administration (FMCSA) asserted that doubling the level of liability does not imply a doubling of the dollar value of the risk. “It depends upon how frequently the higher cost events occur, relative to the frequency of the lower value,” FMCSA stated.

But Albrecht said that while midsize to large fleets typically will have self-insurance retention, where they can afford to pay anywhere from $1 million to $5 million and higher on their own before their insurance policy kicks in, smaller fleets typically can afford only “first-dollar” liability, where coverage starts from the first dollar of the cost of an accident.

“So using simple math, if you’re now paying $7,000 to $8,000 per truck per year, you’re potentially looking at more than doubling their rates,” Albrecht said, which could mean those same rates increasing to $15,000 to $20,000 per truck annually. He pointed out that insurance companies would also factor in risk assessments when coming up with a rate.

A recent survey on nuclear verdicts by the American Transportation Research Institute found that over the past two to five years, commercial truck insurance premiums have increased 35%-40% annually for low- to average-risk carriers, at similar rates as increasing litigation awards. Increasing insurance costs have also been cited as being indirectly — and sometimes directly — behind recent trucking bankruptcies, including a 13-power-unit company in Illinois forced to shut down earlier this month.

Increasing the minimum liability caps to $2 million — a change that’s supported by trial attorneys — is not going to address the higher insurance costs associated with nuclear verdicts, Albrecht contends. “Our conversations with fleets suggest that only 2-5% of all claims exceed the current $750,000 minimum. So the question is, what does the $2 million level solve?”

Fortunately for small trucking companies, the provision to raise the cap on insurance liability is contained in an infrastructure bill that the U.S. Senate is not likely to support. Still, Albrecht recommends that owner-operators check in with their insurance brokers. “It’s not only what your loss runs have been and your driver profiles, but where those losses are incurred now, and what that could mean if you get in a trial situation,” he said.

“At the end of the day, there has to be an incredible focus on safety, whether you’ve got one truck, 1,000 or 10,000.”

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  1. Insurance employee -this not good for truckers

    The email was sent by ELD Solutions, which announced a product in May that meets the ELD specifications from the Federal Motor Carrier Safety Administration. The email explained that by using the “AOBRD Mode” a carrier could edit driver logs and not see the original log. “We only store the edited version and not the original log,” the email said.

    AOBRD stands for Automatic On-Board Recording Device, otherwise known as FMCSA 395.15, which specifies the conditions by which fleets can voluntary use e-logs in lieu of paper logbooks.

    The reader, who wished to remain anonymous, had this to say about the email he received and forwarded to CCJ:

    “As a small carrier who strives for compliance and agrees with the ELD mandate (for the most part), I feel that the ELD mandate only makes sense if the system is an honest one. If drivers or companies are allowed to violate the HOS while technically in ‘compliance,’ then they would gain an unfair competitive advantage.”

    ELD Solutions, based in Nashville, Tenn., is apparently trying to sell fleets on what it believes is a unique feature in its application – the flexibility to use the AOBRD version of its electronic logging application or the ELD version (FMCSA 395.16).

    FMCSA officials, inspectors talk carriers’ role in ELD edits and malfunctions, roadside enforcement

    With the Dec. 18 deadline for electronic logging device compliance approaching, federal officials and Texas state inspectors were on hand at the Great American Trucking …

    Enforcement of the ELD rule begins on December 18, 2017, but the rule contains a provision that allows carriers to wait until December 2019 to comply with the new ELD standard if they have implemented AOBRD-compliant technology before then. By 2019, all carriers will be required to use ELD-compliant devices and applications.
    According to information on its website, the Federal Motor Carrier Safety Administration allows fleet managers to edit drivers’ records of duty status from an AOBRD “to accurately reflect the driver’s activity.”

    The manager must include an explanation of the mistake in the remarks section of either the original or amended record of duty status, the agency says, and “both the original and amended record of duty status must be retained by the motor carrier.”

    According to the email from ELD Solutions, its AOBRD Mode does not store the original log. CCJ sent the exact wording used in the email to FMCSA spokesperson Duane DeBruyne for clarification. He confirmed that editing is allowable under the AOBRD rule, but did not implicate ELD Solutions for any wrongdoing.

    Under the new ELD rule, fleet managers will be able to edit driver logbooks for accuracy, but the main difference is that drivers must be given a chance to accept or reject their edits.

    CCJ contacted Pavel (Paul) Borisyuk, the salesperson for ELD Solutions who sent the email, to ask for clarification on how the system works for editing driver logs to add more drive time.

    “It gives (motor carriers) more flexibility to adjust the logs,” he said. When asked to elaborate, he said he would rather explain it to motor carriers rather than to a media outlet.

    “Most people don’t know they can switch versions. We can provide two modes under one hardware so they can switch,” he said. “For more flexibility they can run under the AOBRD Mode. Most people want more room to edit logs.”

  2. Kenneth Craft

    I’m just getting started with my own authority , been trucking for 15 years leased on to a company decided to go on my own the lowest insurance quote came in at 16,000.00 dollars per year and yes I got at minimum 10 quotes , this is with 1 million trucking liability and 1 hundred thousand of cargo. Been told insurance company’s are hitting new owners hard .if they double this without doubling the rates it not going to work told my wife this adventure my be short lived. If this doesn’t work out I really don’t know just don’t know………………

  3. Batman Trucking

    I been a owner operator 4 years. A insurance increase will put me out of business unless rate sky rocket.. Maybe this was the plan to put owner operators out of business.

  4. Tiger

    It will put me out of business there’s no way I can pay them kind of premiums with the freight rates we currently have and all the regulations the government puts on us and fuel prices being as high as it is. Been driving since I was 18 years old 53 now the trucking industry is going backwards

  5. Steve Ottaway

    Another big slap in the face, I’ve been a trucker since I was 18 and I’m 65 now with millions of safe miles behind me. This will probably put me out of business and I’m sorry of thinking of myself but the trucking industry has been going down for sometime. This is for the lawyers so they can do more commercials on TV and bash the trucking industry with billboards.

Comments are closed.

John Gallagher

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of freight transportation. He has covered rail, trucking and maritime issues since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable Magazine. He graduated from Florida State University majoring in English and business.