Truckers Insurance Headed in New Directions

Turns in the Road Include Recession, Court Rulings, Safety Initiatives, Coverage Forms

The year 2010 might be considered revolutionary in the trucking insurance field, as it is ushering in more changes than those who provide insurance for truckers have seen in a decade.

Motor carriers are being affected by the recession, recent legal actions, a new safety incentive and modifications in ISO coverage forms, according to M. Thomas Ruke Jr., president of Insurance Business Consultants Inc.

First and foremost, the economy has affected everyone, truckers included. Capacity is down about 45 percent from where it was in 2005 and 2006, according to Ruke. “When somebody does not buy something, then there is no need for the trucker to bring it to anyplace,” he said.

Moreover, when the economy went south, a lot of smaller truckers went out of business, and trucks were repossessed. While the need for carriers is starting to pickup again slowly, Ruke said trucking companies are going to rely more on trucks that they do not own – owner-operators – instead of buying new trucks. Trucking companies also are expected to rely more on brokerages and more independent contractors.

Legal Actions

Recent court actions are affecting motor vehicle carriers as well. One favorable ruling has limited what happens following a trucking accident, insulating the trucker’s insurer from being brought into a case when the insured uses an uninsured vehicle he or she does not own.

Another decision, however, has been unfavorable, in that state and federal governments are cracking down on companies that use independent contractors because they believe during the economic downturn, many companies have been illegally classifying workers as independent contractors instead of full-time employees to avoid paying their benefits.

Changing a worker’s status from a full-time employee to an independent contractor means an employer does not have to pay workers’ compensation benefits, for instance. Because that status change also means federal and state governments receive less revenue from taxes, many governmental bodies are taking companies to court, challenging how an employer classifies its employees.

“It has been a tradition in the industry for trucking companies to use independent contractors, what are called owner-operators,” Ruke said. “The pressure that is being exerted will change some of the methods of a trucking company when it uses someone else’s vehicle. I think there is going to be a lot more independency to the person with two or three trucks.”

Safety Concerns

A major safety incentive that’s been piloted in nine states – and will be rolled out nationwide before the end of 2010 – will no doubt affect the trucking industry. The federal government has said it is stepping up efforts to put the 20 percent of motor carriers it believes are bad operators out of business. The federal government has modified the Comprehensive Safety Analysis (CSA2010), changing how a trucker is rated by incorporating roadside inspections into the rating and making the ratings available for public viewing in real time.

Previously, if a truck was pulled to the side of the road and inspected by a Department of Transportation officer, the roadside inspection information did not affect the trucker’s safety rating, only onsite inspection information made it into the rating.

Only about 2 percent of motor carriers actually were subjected to onsite inspections, Ruke said. But under the new system, that roadside inspection information will be included in the federal database, rating a trucker from a safety viewpoint. “In the new system, there will be more immediacy, more continuous information going into the federal databases rating a trucker from a safety viewpoint,” he said.

Personal Records

Additionally, for the first time, drivers will be held accountable for their personal driving records and out-of-service violations. Violations for speeding or following too closely, as well as having good tires, a secure load, working lights, a proper driver’s license and being within the required hours of service will all factor into a trucker’s safety rating.

In the past, court systems have held shippers responsible for using trucking companies that are unsafe, Ruke said. But now that the continuous rating will have all of this information and new terminology that says whether a trucker is fit, marginal or unfit, an insurance agent, carrier and shipper’s viewpoint of a trucker – and their liability if an accident occurs – will change.

“Insurers and trucking companies are going to have to screen their drivers in more detail than they ever have before,” he said, recommending that insurance companies look at trucking company ratings monthly once the new safety system goes online nationwide.

When a trucker buys a policy, part of the policy insures against the risk of having an accident, Ruke explained. In settling the accident claim, the insurer may have to defend the actions of the driver.

“What happens if the federal government determines that the driver’s actions have led to a rating that he’s/she’s unfit to drive and that information is readily available online? Imagine standing before a jury trying to defend a driver that has been rated unfit to drive. If they are unfit, why did you give them a load? If you had not given them a load, they would not have been there to kill or hurt that person. [The new safety ratings have] placed a layer into the system that is almost impossible to defend,” Ruke said.

New Coverage Forms

Finally, the Trucker’s Coverage Form that agents traditionally have used to write truckers has been withdrawn by ISO. While the Motor Carrier Coverage Form has been in the marketplace since 1994, most insurers have been reluctant to use it simply because they were familiar with the Truckers Coverage Form. But ISO is withdrawing the Truckers Coverage Form because the Motor Carriers Coverage Form can be used to write both private and for-hire truckers relying on the contract between the two parties, he said.

“The forms are not all that different, but insurance agents need to understand the shift from operating under authority, which was the wording in the Truckers Coverage Form to the written contractual wording in the Motor Carrier Coverage Form,” Ruke said.

These four factors are all converging on the trucking industry in 2010, which means it is going to be an “interesting world,” Ruke said. “There is going to be more pressure on the language in the contracts, and those contracts will need to be rewritten in light of both the new safety regulations, new employee registration requirements and the move to the Motor Carrier Coverage Form.”

Ruke was a speaker at the Insurance Skills Center Agribusiness Conference.

Topics Carriers Trucking Contractors