Insurance ratings: What are they and why do they matter?

In an industry where razor-thin margins and high operational costs are the norm, insurance cost and quality can play a pivotal role in determining a company’s financial stability. Even as the market shifts, insurance rates have an outsize impact on carriers.

“Diesel prices are leveling off and spot rates are gradually increasing, but insurance costs continue to be one of the largest expenses for carriers,” said Sandy Scardina, senior vice president of strategic relationships and managing partner at TIE.

The trucking insurance market remains underserved, driving up rates and limiting coverage options. This only worsens the problem at hand. 

In an effort to combat this, Transportation Insurance Experts (TIE) unveiled an admitted truck insurance program earlier this year. The product, which includes auto liability, physical damage coverage and general liability, is specifically designed to increase competition in the insurance sector and give carriers more options.

TIE’s admitted product is rated by Demotech. Insurance ratings – most often provided by Demotech or AM Best – indicate how likely an insurance company is to remain solvent and retain the ability to pay out claims.

In a recent episode of Loaded and Rolling, FreightWaves Trucking Expert Thomas Wasson chatted with several experts about the intricacies of insurance ratings and why they matter more than ever.

Guests included Taylor Nelson PL Managing Partner J.W. Taylor, TIE Managing Partner Tyler Christensen, Demotech CFA Barry Koestler and Scardina. 

“Rating agencies are important because shippers and brokers want their claims paid,” Taylor said.

Most industry players, however, have little understanding of insurance ratings. This can lead to a slew of issues, from carriers unknowingly choosing subpar insurance products to shippers and brokers unnecessarily limiting their carrier partnership options based on outdated contract terms.

For example, some brokers and shippers use contracts that require carriers to have insurance rated by AM Best. This common contract language can prevent these companies from working with those carrying coverage rated by another company, like Demotech. This unnecessarily precludes carriers from opportunities and shrinks transportation networks.

Demotech is an established and effective rating company, and wider acceptance of Demotech-rated insurance products will serve to increase capacity and create more competition in an undersaturated insurance environment.

“Demotech has been doing ratings for nearly 40 years. This is not our first time doing this,” Koestler said. “We rate about 450 companies right now, and about half of them are uniquely rated by us.”

“Demotech-rated carriers are imperative right now,” Christensen added. 

At the end of the day, TIE and Demotech are both committed to creating a wider pool of top-notch insurance options, making it possible for more trucking companies to get desirable coverage and stay in business.

Click to learn more about TIE and Demotech.