Puttin’ on the risk

| January 04, 2002

Since the Sept. 11 terrorist attacks, owner-operators and carriers have been bracing for insurance rate hikes that many expect to be worse than those of the past few years. Many owner-operators have been insulated from the double-digit percentage increases in insurance costs that fleets have faced, but that appears to be changing. Peter Pomerenke, an agent with Truck Insurance Mart, says he sees rates rising from as little as 10 percent for the lowest risk operators to 30 percent for more marginal ones.

“We saw prices start to go up about the first of 2001,” he says. “So we can’t blame all of this on Sept. 11. We’ve gone from 100-plus insurance providers writing truck policies a few years ago to about 30 or so now.”

But insurance companies and the reinsurance companies that cover their risks, which often share more than 50 percent of the liability on a truck policy, are struggling to pay an estimated $40 billion in Sept. 11-related claims. Many will pass those costs, as well as the cost of higher risks associated with future terrorism, to customers.

Greg Feary of Scopelitis, Garvin, Light and Hanson, an Indianapolis law firm that specializes in transportation insurance law, says insurers are probably going to raise rates for most fleets 30 percent to 35 percent in January and a similar amount in July. That’s when most reinsurers renew their annual contracts with insurance providers.

“If you have a sweetheart deal, your changes are going to look dramatic,” Feary says. Those already paying high premiums may not see such a dramatic increase.
Trucking companies may have a hard time passing on increased insurance costs. “Shippers don’t want to pay the extra costs,” says Norris Beren, a risk management consultant and retired insurance broker. “Shipper margins are so thin. Somewhere along the way someone will have to bite the bullet.”

Beren thinks owner-operators will be among those hit, though they won’t see the big increases fleets face because the cost of insuring equipment isn’t going up. “Most owner-operators only have to insure their trucks,” he says. Leased owner-operators don’t have to worry about liability or cargo insurance, where premiums are expected to spike, though independents do.

Liability and cargo insurance will be more costly for independents, and leased drivers may have to pay higher deductibles.

“We haven’t seen any rate increases yet,” says Brenda Guffey, property and casualty insurance manager for the Owner-Operator Independent Drivers Association. “Our rates were pretty stable before Sept. 11, and our reinsurer believes it may stay the same.”

Even so, Guffey says, more carriers are sharing their insurance burden by requiring leased owner-operators to pick up all or some of the deductible after a preventable accident. If carriers in the coming months choose higher deductibles to avoid higher premiums, they will have greater pressure to make owner-operators absorb a bigger share of deductibles.

Guffey says many leased owner-operators, who are generally only responsible for physical damage and bobtail insurance, are unaware that fleets may hold them accountable for a deductible.

“One owner-operator who hauls heavy machinery called me about his lease,” Guffey says. “Two weeks after a load, his carrier took a $7,000 hit when the machinery was unwrapped at the receiver and was found damaged. It could have happened after it was loaded. Who gets slammed with the deductible? The owner-operator.”

What can you do to prevent getting stuck with a huge bill after an accident? “Read that lease,” Guffey advises. “So many owner-operators haul loads without knowing what risk they’re assuming.”

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