A Look at the Transportation Insurance Industry

Industry Still Stalled in a Soft Market But Some Rate Increases on the Horizon

Observers of the property and casualty insurance industry, who consider themselves gurus when it comes to predicting cyclical changes, find themselves in a state of perplexity these days. Traditionally, they look to the transportation insurance industry as a herald of market cycles. The transportation insurance market softens first, and then the rest of the P/C market begins to follow. Or, the transportation insurance market hardens, and so goes the rest of the industry.

For those who are hoping for a hardening of the P/C market overall, there is room for some cautious optimism when considering the state of today’s transportation insurance market, with “cautious” being the operative word. It isn’t that transportation insurance rates are going up — quite the contrary.

The fact is that the industry is still mired in a soft market. However, in some areas of transportation, the pace of rate reductions is slowing somewhat, and that’s a good sign.

As of the fourth quarter of 2008, for most account sizes, rates in the transportation insurance market continued to fall, but at a reduced pace when compared to prior quarters. While there have not been any drastic rate increases, there are early signs that the trend might be moving in that direction, especially for small and medium sized accounts. Premiums for large accounts, however, continue to fall at the same pace of 10 to 20 percent.

Select segments of the market are showing fewer rate decreases, especially bulk haulers, charter/tour buses and airport ground transportation. Rate decreases are easing for all product lines. However, motor truck cargo and warehouseman’s legal have experienced the lowest decline in premiums. Rates on many expiring umbrella policies are actually flat or increasing.

Those observations are just some of the key findings of NIP Group’s Transportation Insurance Pricing Survey (TIPS), which is designed to benchmark changes in the availability and rates in the transportation insurance market. We surveyed the nation’s leading transportation insurance brokers, wholesalers and underwriters about what they’re seeing with rates on their accounts. The results are published quarterly.

Continued Competition

One issue contributing to rate declines is competition. A few years ago, there were only 40 companies writing trucking insurance business. Today, that number is closer to 100. However, a positive sign is that there are fewer insurers entering the transportation market than in previous years.

There are still the “rogue” players in the business though, and they’re keeping rates depressed. These are players who enter the business, stay around for a couple of years and then retreat when the losses come in. There are still individual accounts that are being written past the burn factor.

People in the transportation business are wise to take advantage of reduced rates during a soft market. However, they should be forewarned that when the market hardens rate increases might seem unmanageable. If an account is being written at 20 percent less than normal market rates, when the hard market comes that account can see the premiums double or triple, and that’s a bitter pill to swallow.

Finally, when considering the current state of the transportation industry, one must also examine other outside influences that are having some negative effects on the business. Truckers today are strapped for cash and they have thin margins. They went through 2008 first with soaring fuel prices, which seriously damaged their bottom lines, and then with the emergence of a financial crisis the likes of which has not been seen before. Fuel prices have eased, but retailers are saying that sales are dropping and will probably continue to do so for the foreseeable future. Low sales mean fewer items to ship which, in turn, means that trucks remain idle.

With power units being taken off the road, and drivers and employees furloughed, one small positive for transportation companies is lower insurance premiums because of lower insurance exposures. What we don’t know is how this will impact transportation insurers, as they deal with lower premiums because of lower rates and exposures.

Economic Woes

The economic crisis has rippled through other areas of the transportation industry as well. The casinos of Atlantic City, N.J., are experiencing serious financial difficulties, some of them flirting with bankruptcy. Because of hard times, with massive unemployment, people don’t want to gamble away whatever cash reserves they have left. And fewer people going to casinos means fewer people renting limousines or charter buses.

Naturally, the soft market has hurt everyone, but it seems to have affected the short haul trucking market more than the long haulers. Municipal construction and road works have been cut back, so short haul truckers have to look elsewhere for work.

In summary, the future of the transportation insurance industry depends on a return to sanity within the industry with rogue players exiting the market and the long-term players bringing stability to the market, and on a fond hope that the economy will at least be heading in a different direction than it is now.

Topics Market Property Casualty