Insurance costs are becoming a headache again for trucking executives as premiums rise amid a run of high claim awards.
Insurance premiums had been rising in the past decade before hitting something of a plateau during the pandemic and in its immediate aftermath. The American Transportation Research Institute said last year that premiums rose 2.3% in 2021 and 2022; 2023 statistics aren’t official yet, but good news isn’t expected.
The rise in premiums hurt small carriers with tight margins, and small carriers comprise the vast majority of U.S. transportation companies. Larger companies contend with large verdicts and settlements.
John Roberts, CEO of J.B. Hunt Transport Services Inc. of Lowell, cited insurance costs in a fourth-quarter conference call last month. He said J.B. Hunt had $53.4 million in additional costs in the fourth quarter because of higher claims costs despite having what he called the carrier’s safest year ever.
“On the topic of insurance, we have been routinely covering with you the inflationary cost headwinds we faced as a company, as well as an industry in the areas of professional driver and nondriver wages, health care benefits, and equipment cost. However, as an industry, we are also seeing unprecedented pressure in the area of claims, cost or settlements,” Roberts said. “We remain one of the safest carriers in the industry. Yet our insurance rates continue to increase … .”
It won’t get better for J.B. Hunt this year. Chief Financial Officer John Kuhlow expects insurance premiums to continue to be a concern.
“And as we reset the premiums going into 2024, we saw upwards of 50% to 60% increases in those premiums,” Kuhlow said. “And so when we talk about the inflationary pressures that we’re seeing in 2024, it’s mostly around our premiums.”
Jeff Loggins, owner of Loggins Logistics, a 75-truck company in Jonesboro, said his insurance premiums have jumped 100% in the last 10 years, and he is now paying about $1 million in annual premiums. Premiums have risen because large settlements and verdicts made the industry too risky for some insurers, driving them out of the market. High premiums compound the pain of industry problems like a freight recession and inflation.
“Insurance has gone up anywhere from 20% to 30% in the last couple of years,” Loggins said. “It has a huge effect on us. We have to start cutting somewhere else to make up for the expense we have to put out for insurance.”
Loggins’ personal nightmare example came a few years ago in Texas, where one of his trucks got into what he called a fender bender with a car. There were no injuries and neither vehicle had to be towed, but the car’s driver sued Loggins Logistics and the insurance company settled for $750,000.
“All it was was a tire mark on the passenger door with no passenger in the car,” Loggins said. “The insurance company did not want to go to court and face the possibility of getting a higher [verdict].
“If you’re at fault, you’re at fault and you have to face the consequences,” Loggins said, even in a minor accident. Insurers make those settlement decisions daily, driving premiums up.
Jack Atkins, managing director and transportation research analyst at Stephens Inc. in Little Rock, said the risk of a high verdict leads insurers to settle, but those settlements still pinch the insurance market.
“The thing that has been driving this is the cost of the liability from all these accidents and these jury awards have gotten out of control,” Atkins said. “If you’re an insurance carrier, you’ve become increasingly unwilling to accept that sort of risk. They have just been walking away from the transportation market.”
Trucking executives and industry lobbyists say one answer to the current insurance storm is tort reform, but that requires a state-by-state effort. ATRI said the highest insurance premiums are in states in the Northeast, where the most lawsuits are filed.
Trucking companies are turning to technology such as forward-facing cameras to protect themselves.
Loggins said a forward-facing camera helped his company avoid a lawsuit when it showed that a car had driven into one of his trucks, rather than the opposite, which was what the car’s driver had told police.
“I have yet to talk to someone who has implemented forward-facing cameras and regretted it,” said Shannon Newton, the president of the Arkansas Trucking Association. “Their return on investment has been very quick for carriers who chose to engage in forward-facing cameras.”
Trucking companies are required to have $750,000 insurance on their trucks, and larger companies such as J.B. Hunt usually have much more and often layer the coverage through several policies.
“It is the larger carriers who bear the brunt or the disproportionate share of the escalating insurance and claims costs, and ultimately these inflationary costs get passed on to customers and consumers,” Roberts said in the conference call.
Loggins and Newton both said that tort reform isn’t about immunity. Loggins said he has no problem with paying for mistakes, but $750,000 for a dented door is unfair.
“We are not trying to get out of it when we mess up; we’re just trying to make it where I don’t lose $1 million over a fender bender,” he said. “Getting hit by a big truck is like winning the lottery now. The verdicts are so astronomical, it’s crazy.”