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U.S. commercial auto insurers continue to face disruptions on their road to profitability due to inflation and the spotty post-pandemic economic recovery, according to a Standard & Poor’s Global Ratings report.

The commercial auto sector had a reprieve in 2020 because COVID-19 restrictions led to significantly less driving, something that was particularly compelling in the commercial auto insurance field. That year, accident fatalities involving large trucks and buses dropped nearly 13% to 4,565 fatalities. Nonfatal crashes in the space plunged 14% to 156,707, according to statistics from the National Highway Traffic Safety Administration.

S&P Global Ratings predicts more miles driven, along with inflation, supply shortages, a shortage of experienced drivers and rising litigation costs will delay any positive momentum for the sector, at least in the short term.

Trucking is perhaps the hardest hit industry segment in the current commercial auto market, according to the “2021 U.S. Transportation Market Outlook” report by RPS. “Standard carriers are limiting capacity, especially for distressed fleets with poor loss experience and unacceptable safety scores.”

“Standard markets also are lowering limits on primary policies to below $2 million, forcing buyers to purchase more excess coverage to obtain desired coverage levels,” the RPS report noted.

Though the lower loss frequency during the pandemic did fuel some market softening, claim severity was worse, and carriers are still trying to offset more than a decade-long problematic loss ratio, the report noted. “Medium and large fleets are getting better pricing than small fleets because they usually are more committed to loss control, and typically employ full-time safety managers and dedicated mechanics to monitor and correct poor driver behavior and maintain vehicles.”

One area that challenges this sector is labor shortages. For years, transportation experts have warned of a looming trucker shortage, particularly for long-haul drivers delivering across state lines and among the older ages of experienced drivers. In 2020, the ATA American Trucking Association (ATA) estimated the industry will need 1.1 million new drivers to replace those who will be retiring over the next 10 years.

Trucking accounts for nearly 6% of all U.S. full-time employment, according to the Bureau of Labor Statistics, and the industry employs about 7.4 million workers to support the $800 billion sector.

The trucking industry’s labor force is fluid, with a very high attrition rate, as it competes with industries such as warehouses and construction. This, along with time away from home, health issues, and stagnant wages for many truckers are some reasons behind the persistently low retention and shortage of drivers.

According to a recent survey by the American Transportation Research Institute’s (ATRI), driver shortages, driver retention, driver compensation, lawsuit abuse reform, truck parking and the shortage of diesel technicians are top industry concerns for the sector.

A few pressures which are contributing to the driver shortage issue, include growing freight demand, the aging driver workforce, drivers who left the industry over health concerns during COVID, new entrant training and licensing backlogs from COVID-related closures, and drivers who are not initiating the return-to-duty process after positive drug tests, the ATRI said. In addition, the recently announced vaccine mandate for all employers over 100 employees has raised concerns that additional drivers will leave the industry rather than get the COVID vaccine, the ATRI said.

Verdict Awards Spike

Significant attention has been brought to the issues surrounding truck crash litigation over the past two years including the rise in nuclear verdicts, according to ATRI’s 2020 Nuclear Verdicts study which revealed a 967% increase in average verdict size between 2010 and 2018.

ATRI’s research showed the average verdict award spiked dramatically in 2018 by a factor of nearly five times from less than $5 million in 2017 to $22.3 million in 2018.

Longer term, the average verdict grew 32.8% annually (rising to $22.3 million from $2.3 million) while the Consumer Price Index (CPI) grew about 2.0% and health-care costs at 5.4% annually between 2010 and 2018, highlighting how social inflationary pressures have led to ever more severe verdicts.

ATRI also claims that large verdicts against trucking fleets are increasing both in number and in size of awards. Of the 451 cases compiled by ATRI in 2006-2019, it found 265 cases with verdicts exceeding $1 million from 2012-2019 compared with 79 cases from 2005-2011.

As a result insurance costs continue to rise. According to FreightWaves, a third-party U.S.-based supply-chain and logistics freight data analytic firm, insurance expenses, as percentage of total revenue for the trucking industry, climbed to 4.8% as of first-quarter 2021, up from 3.4% at year-end 2016 due to rising costs of insurance as insurance carriers pushed rate increases over the past four years to offset losses from a rising number of accidents and higher settlement costs.