With the combination of the ongoing trailer shortage and the appeal of fewer start-up costs, many owner-operators are turning to power-only operations. While this can be a very successful business plan, there are some serious considerations when it comes to insuring the variety of trailers we pull as a power-only operation. If we get it wrong, neither ourselves nor our customers who own the trailers will be happy. In fact, it can financially cripple us and potentially put us out of business.
This is the most important takeaway from my article: Every insurance company has differing policy and claims rules when it comes to the two types of insurance to cover those trailers: so-called trailer interchange and non-owned trailer coverages. Likewise, every customer or truck broker has differing insurance requirements to do business with them. It is imperative you consult with your insurance agent and disclose to your agent the exact nature of your business agreement with all your customers, including brokers who you do power only for. Only then can your agent assist you in securing the correct trailer coverage to meet your insurance needs.
It’s important that we understand the differences between trailer interchange and non-owned trailer coverages. Trailer interchange coverage was created and offered to truck owners as a method to insure trailers that were owned by a single company/customer that the truck owner hauled loads for. Non-owned trailer coverage, on the other hand, was created and offered to truck owners as a method to insure a specific trailer class or type, in situations where a truck owner might be pulling those trailers for multiple and different trailer owners. Those two basic differences are the starting point for understanding which coverage is the best choice for our power only operation, or in some cases the necessity of having both coverages. Deductibles do apply for both of these coverages, and may vary by policy.
Have a particular insurance-related question for the author of this story, insurance agent/longtime owner-operator W. Joel Baker? Drop a comment with any question under the story or get in touch with Baker directly via his website.
Trailer Interchange
To purchase or add trailer interchange coverage, most insurance companies require that they be provided a copy of the trailer interchange agreement between us, the truck owners, and our customer or truck broker. Additionally, insurance companies will require us to disclose the type or types of trailers we will be pulling-- vans, reefers flatbeds or another trailer type.
Very important note: each insurance company is different as to when they will require you to provide the trailer interchange agreement. Some will ask for it before they allow you to purchase the coverage, while others only if/when you file a claim. Some insurance companies require both. If you are not able to produce a valid trailer interchange agreement, coverage (a claim) can be denied!
Non-owned Trailer
Adding or purchasing non-owned trailer coverage is a much simpler process. However, it too has very specific details we need to address. Every insurance company is different when it comes to non-owned trailer. Just like trailer interchange, insurance companies will require us to disclose the type or types of trailers we will be pulling. Some insurance companies will exclude certain types of specialty trailers like carnival rides, industrial mobile generators, extendable trailers for over-length loads, etc. All insurance companies will require us to disclose the maximum value of the non-owned trailers we pull. That amount will be the limit of coverage.
Scenario 1: If we purchase non-owned trailer coverage for van trailers only with a value of $40,000, that amount is the limit of our coverage for a van trailer we pull. If we happen to pull a reefer trailer and have a claim the claim can be denied because it’s a reefer trailer and not a van trailer.
Scenario 2: If we purchase non-owned trailer coverage for vans, reefers and flatbeds with a value of $40,000, that amount is the limit of our coverage for any of those types of trailers. If we happen to pull a reefer trailer and have a claim for $90,000 the claim will be paid up to the limit of the policy of $40,000. We are then liable for the unpaid amount of the claim of $50,000.
As previously noted, deductibles would apply in both scenarios.
In some cases it may be necessary for us to have both trailer interchange and non-owned trailer coverage. This usually happens when we pull trailers for multiple customers and one of our customers requires trailer interchange coverage for the trailers they own, while the other customer we have will only accept non-owned trailer coverage.
Without going too deep in the weeds, it mostly has to do with who owns the trailer. When a broker gives us a power-only load, they most frequently only ask for non-owned trailer coverage because most brokers don’t own the trailers we pull for them. However when a direct customer who owns the trailers gives us a power-only load, they will sometimes require trailer interchange, expecting us to pull their trailers on a regular if not dedicated basis.
Insuring a trailer using either trailer interchange or non-owned trailer coverage is traditionally a higher premium than insuring a trailer you own. When assessing a power-only opportunity with a customer or truck broker, request a quote from your insurance agent so you can properly estimate your profitability. If that is not an option, I recommend estimating high. If your van trailer with a value of $30,000 has physical damage coverage (comp. and collision) that costs you $1,500 in premiums a year, expect your trailer interchange or non-owned trailer coverage to cost an additional $2,500-$3,000 in premiums. If your quote comes in lower to add trailer interchange or non-owned trailer, it’s a pleasant surprise that means better profits for you.
This is a very telling statement from an insurance underwriter I work closely with: “Honestly, I do not write ‘trailer interchange’ often, as it costs the same as non-owned trailer with [physical damage] and requires way less paperwork for everyone.”
Because of the intricacies between the two coverages and differences between insurance companies, I can’t emphasize enough the need to consult directly with your insurance agent to assess your needs. As I said before, disclose to your agent the exact nature of your business agreements with all your customers, brokers, anyone you expect to do power-only work for.
Read more about power-only operations in this four-part series exploring the boost the COVID-19 pandemic gave to power-only opportunity the last couple of years.
Find more information about the ins and outs of trucking insurance, among a myriad other topics, in the Overdrive/ATBS-coproduced "Partners in Business" manual for new and established owner-operators, a comprehensive guide to running a small trucking business. Click here to download the 2021 edition of the Partners in Business manual free of charge.
