When the time comes for an independent owner-operator's annual insurance renewal, news of a big hike in liability premiums can come as a shocker. Consider a one-truck West Virginia-based owner-op, long in business as a motor carrier, staring down the barrel of a doubling in liability premiums even with a clean record, no accidents or tickets, no changes to speak of.
As detailed in the prior part of the Partners in Business playbook, there are myriad factors that go into an insurance company's determination of a premium rate. Many changes in what some call the "risk environment” are fully outside an owner-operator's control:
- Changes in other drivers' risk patterns
- Vehicle repair cost inflation
- Medical cost inflation and litigation -- an ever-increasing problem with the proliferation of so-called nuclear high-dollar verdicts in civil suits against trucking companies
Yet there's plenty owner-operators can do to improve an insurers' view of the business. The goal? To be seen as low of a risk as possible, to get the best rate available.
The risk factor is the name of the game, here. Beyond keeping a clean driving record, independents with their own authority should ensure they’re keeping a clean safety-information record, as also noted in the prior part of Partners in Business. Most insurers will review a motor carrier’s inspection history with the Federal Motor Carrier Safety Administration, along with the records of any other driver(s) listed on a policy.
A clean inspection history and safety record from FMCSA could help keep insurance rates low, but on the flip side, if the record deteriorates, or you hire a driver with a poor record, rates are going up.
You definitely don’t want any claims. If the insurance company doesn’t flat-out drop you after a claim, they’ll make their money back in premium increases.
Mind any claim's open reserve prior to renewal
Ahead of renewal, even before detailed analysis of driving records and the like, the first thing insurance carriers will assess is an owner-operator’s losses, or claims. If the broader insurance market's rising in cost, and you start adding losses into the picture, expect hefty increases.
To mitigate it, work with an insurance partner -- an agent or broker -- to address any open reserves on loss runs before renewal arrives. In insurance, reserves are essentially money set aside as a budget when a claim is opened, before the claim is settled. The insurer doesn’t know what the final claim amount will be, so they open a reserve to set aside money to cover the claim.
For instance, say three $30K claims with open reserves remain pending, and there's been little if any action on those claims. It's good to have an advocate on your side in the form of an agent who can press the insurer to reduce reserves where appropriate. An $30K open reserve for a rear-end hit to the trailer that did almost zero damage to either party should be reduced substantially.
Getting reserves down as much as possible will hold huge import for your premium at renewal. Do it well before insurance renewal -- experts among agents recommend prior to the 90-day countdown to the policy end date.
Does it pay to shop around?
The answer to that question can go either way. There can be cost benefit to staying with the same insurer a long time, building a strong relationship.
On the flip side, feel like you’re paying too much? On wrong side of an underwriter's rate-making formula? It can't hurt to look around.
The one-truck independent mentioned at the top of this story did just that. avoiding most of an extra $11K in costs for the year by shopping around and locating an insurer's commercial auto liability program that was fairly new to to his market -- and motivated to win business.
Honorees among Overdrive’s Truckers of the Month attest to the benefits of shopping around, too, by leaning on business associates and insurance agents with multiple insurance-carrier relationships.
[Related: When the mentored becomes the master: Trucker of the Month Adam Mackey]
At once, try not to be overly reactive in shopping, waiting to the last minute with your hand forced by prospects of a massive premium increase. Some insurance companies see a company shopping every year as not worth the effort to engage with a proposal.
Make sure you're broaching the conversation with an agent or broker about renewal ideally six months ahead of time, maybe even longer or routinely throughout the year. A truly effective trucking insurance agent should also be trying to negotiate a renewal or getting an idea of what the renewal is going to look like in order to bring that to you to say, effectively, Now let’s talk about our strategy.
Read next: Physical damage, other important trucking insurance coverages
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