TRUCKING MARKET IS VERY STABLE

Rough Notes, Aug 2004 by France, Larry G

unless ...

* interest rates begin to rise

* new markets unwisely try to buy business

* fuel prices continue to increase

* hiring standards are lowered to address the need to add drivers.

In other words, trucking is a delicate class of business. In the past year we have seen more facilities depart the trucking market, including one that was a major player for some time. The good news is that the few remaining markets have succeeded because they are prudent in their pricing and underwriting, as well as in the selection of MGAs/brokers.

Joe Hutelmyer of Seaboard Underwriters and president of AAMGA (American Association of Managing General Agents) says that no one could have predicted where the commercial transportation marketplace would be today, and the future is very uncertain. The market remains constricted with virtually no new entrants to the marketplace; yet there is plenty of availability and, in some cases, prices have begun to come down from where they were 12 months ago.

According to Hutelmyer, the transportation marketplace, which has declined from more than 120 insurance companies to fewer than 20 in little more than a six-year period, is still inhabited by the specialty markets and specialist MGAs that have been writing the business for decades. They are striving to maintain pricing integrity while at the same time working hard to keep their seasoned renewal book, which is not an easy task.

Hutelmyer says: "The uncertainty in the marketplace is driven by the economics of supply and demand that will keep prices at acceptable levels until there is a rush of insurers in this line. Programs relying heavily on reinsurance will be slower to join the downward trend. If interest rates remain low, underwriting profit will remain king and pricing stay stable, but if interest rates rise substantially, new entries to the market will drive prices down. Higher unemployment has helped the driver supply. The upward economy will generate more supply for consumer goods, thus more raw materials and finished products being shipped. Fuel prices have leveled off recently, but high fuel costs put a strain on the industry and could lead to an increase in business failures.

"Making your underwriters' job easier will earn their respect and keep your submission on the top of the stack," says Hutelmyer. "Determine what the submission requirements are and provide all the information requested. Do a cover letter detailing the insured's operation and any changes from last year's submission."

Tony Glotzbach of United Brokers says, "I used to think that having good drivers was 95% of having a successful trucking company. Over the years and particularly since 1985 when United Brokers first began underwriting truck insurance, I have learned that having the right drivers is closer to 100%. Once the driver leaves the terminal, it is all about him. Everything is riding on the professional skills of the individual in control of that vehicle."

Both Hutelmyer and Glotzbach agree that trucking risks have improved since the U.S. Department of Transportation assumed supervision of the industry. More stringent driver qualifications and new regulations regarding hours of service added to the favorable effects of the CDL. Mandatory drug testing, highway inspections and technological advances in equipment were needed to offset the effects of the nation's tort system and rising medical costs. Fortunately, the recent tort reform in Mississippi may lessen the pressure of lawsuits filed in that state.

Truck freight to rise

The Federal Highway Administration has predicted an increase of 31% in truck freight by 2015. In 2003, 77 million trucks hauled 13.2 billion tons of freight.

As reported in USA Today, the Transportation Committee of the House of Representatives has earmarked close to $1 billion in a pending bill to make selected interstate highways into truck-only roads. One benefit of this proposal is that the ban on double and triple trailers would be lifted with a possible savings of $40 billion to truckers. The article points out that there are 450,000 car-truck accidents each year that result in 5,000 deaths; in 75% of accidents, cars are at fault.

Guess what? The truck-only plan is not free. These truck-only highways would be toll roads. The carriers already pay fuel taxes for highway improvements, so is it more cost-effective to move the freight faster, with less slow or stopped traffic? Just another piece of the trucking industry puzzle yet to be answered.

The current NAFTA "free travel" for trucks incoming from Mexico is another area to place on "watch" regarding the effect it will have on the domestic trucking and insurance industries.

It is always better to be proactive rather than reactive. For example, Markel Insurance Company of Canada, that country's leading truck insurer, has established Markel Professional Transportation Training, a fully accredited Driver, Corporate, and Management Centre.

Recently Markel hosted its first-ever national conference, Safety and Innovation. "The number-one challenge facing truckers today is how to cost-effectively invest in innovation," says David Goodwin, Markel's national director of safety and training. "To address this, our conference will highlight the link between human and economic cost benefits and the bottom line."