A recent article featured in the Wall Street Journal focused on insurance premium increases affecting trucking companies involved in hauling goods to stores and consumers. In the interest of full disclosure, I spent about an hour on the phone with the reporter discussing an array of factors that have driven the recent premium increases experienced by trucking companies. Unfortunately, the author of the article choose to focus not on the underlying causes driving incidents and accidents, but rather on the messenger who brings safety abuses to light and the jury verdicts themselves. The article essentially argues that a tactical shift by personal injury lawyers was one of the primary factors in driving premium increases or motivating insurers to exit the trucking insurance market.
While arguing that truck accident attorneys who identify and pursue trucking companies with systemic safety failures are to blame for ‘nuclear verdicts’ has a certain appeal to the general public, such an argument is ultimately specious. This approach to the difficulties facing the trucking and insurance industry is akin to blaming a doctor for identifying coronary artery disease brought on by the individual’s poor lifestyle choices including a race to the bottom in dietary choices. Like this hypothetical patient, in the trucking industry, we also see a ‘race to the bottom’ where unsafe trucking companies ignore safety rules and engage in an array of potentially fraudulent practices to conceal violations.
The difference here is that while a poor diet and lifestyle choices directly affect only the individual who makes them, the actions by chameleon carriers and other unsafe trucking companies also create difficulties for companies that play by the rules. Blaming the trucking accident victims and their counsel who bring potential systemic safety abuses and oversights to light is unlikely to improve the root cause of trucking insurance premium increases: systemic safety failures by trucking companies.
A Caveat Regarding Additional Confounding Factors Affecting Trucking Insurance Premiums
In order to avoid falling into a similar trap of blaming a single cause or entity for premium increases, it is important to first mention that a number of other motivations play a role in both premium increases and insurers exiting the market. For instance, low-interest rates and other factors affecting investment opportunities almost certainly played a role in motivating AIG’s exit from the trucking insurance market. However, from the Wall Street Journal article alone, one would probably assume from the quote that, “Some of these verdicts I think caught them flat-footed,” that large jury verdicts were the only factor involved in AIG’s exit.
Furthermore, the article fails to mention that certain insurance companies have entered the market recently. However, neither this fact nor the underwriting standards of new entrants to the market, like Progressive, are not addressed in the article. The underwriting standards of companies willing to insure new or inexperienced drivers and trucking companies with previous problems generally mean that companies will pay higher premiums. At the same time, the looser standards may permit less experienced drivers to obtain insurance. This may be creating a feedback loop where small trucking companies pay high premiums to place inexperienced and more accident prone drivers on the road. Then, when the inexperienced driver has an incident, the company will soon face even greater insurance premiums and other negative consequences.
The Main Reason for Trucking Insurance Premium Increases Is a ‘Race to the Bottom’
The main reason the trucking industry is facing insurance issues is motivated by a combination of downward economic pressures on price while the industry as a whole attempts to maintain timeliness of deliveries. Essentially, firms attempting to do more with less means that resources that would otherwise be used on safety and related pursuits are either non-existent due to price pressures or utilized to increase the profitability of the company. The practical impact of these types of practices are many and include less oversight in the hiring process for drivers, deferred maintenance on fleet vehicles, and delayed investment in accident prevention or injury mitigation technology and devices.
In the following paragraphs, we will look at some of the systemic industry practices that contribute to causing trucking accidents that increase premiums, affect insurer views of the profitability of the industry, and eventually motivate insurers to cease providing trucking insurance.
Industry View of Hiring Process as a Cost and Elevating Deadlines Above All Else Encourages Grasshopper Drivers
Trucking companies are often under intense competitive pressure to guarantee the shortest possible delivery times. In many cases, these delivery guarantees are met only with the assistance of “grasshopper” truckers. Grasshopper truckers are so-named because they “hop” from state-to-state due to their often spotty driving records that may include multiple violations. In some cases, these violations may even include DUI convictions or drug testing violations that may slip through the cracks or otherwise not show up in other state databases.
Unfortunately, due to their already precarious employment status, trucking companies often pressure “grasshopper” truckers into agreeing to demands that are impossible to satisfy without breaking the law. The company may reason that the driver is desperate for work (they often are) so they will agree to any terms to receive work. Then, if the driver fails to make the delivery on time, he or she is often viewed as expendable by the company. Therefore, these drivers endeavor to make their deliveries even if it requires violations of trucking industry regulations such as hours of service regulation.
The practical impact of this practice is that drivers who may already be at higher risk of an accident are placed under nearly impossible to satisfy time constraints and other pressures. These pressures motivate the driver to take additional risks such as speeding, driving for too many hours, or foregoing routine safety and maintenance checks thereby further increasing the risk of an accident. When an incident does occur, the trucking company then faces increased insurance costs and accident or litigation expenses that may further motivate the company to continue its race to the bottom. However, this premium increase is not motivated by a jury verdict, a settlement or by the company getting caught. Rather the increase is due to insurers becoming aware of the company’s insufficient and potentially systemic underlying practices.
Chameleon Carrier Strategy Allows Unsafe Trucking Companies to Conceal Violations, Out Of Service Status
Abuses like those described in the previous section are made more likely and enforcement is made more difficult by “chameleon carrier” practices. Chameleon carriers are also sometimes referred to as reincarnated carriers. Regardless of the term one uses to describe these types of trucking companies, their day-to-day practices usually involve multiple safety deficiencies. These practices may include some or all of the following:
- Employing underqualified or unqualified drivers
- Employing drivers with a history of drug or alcohol abuse
- Failing to perform maintenance
- Failing to keep driver logs and records
- Falling to perform safety inspections on fleet vehicles
- Operating trucks while in out of service status
Casual observers of the trucking industry would probably expect a system of rules and regulations enforcement that nearly always corrects identified safety problems. Alternatively, they may expect companies that refuse to comply to be shut down by government regulators. Unfortunately, actual practice reveals that these seemingly reasonable assumptions are unfounded.
In reality, many of the trucking companies engaging in unsafe practices are identified. However, instead of correcting the safety problems identified, these companies will simply “shut down” and then “reincarnate” as a new entity. Thus, the same safety violation may be detected multiple times and yet, as a series of trucking company entities conceal a bad actor, the safety defect will remain unrepaired and the vehicle will stay on the road. Chameleon carrier tactics imperil the health and safety of all motorists.
Insurance companies are increasingly aware of systemic industry practices like these. Therefore, many insurers are more hesitant to insure small trucking outfits with little to no history. Insurers recognize that in at least some cases, they will be insuring an entity with serious safety issues that is hiding behind a new identity. Therefore, as discussed at the beginning of this post, what we end up seeing are insurance companies exiting the industry following the realization that significant uncertainty regarding risk exists due to chameleon carrier tactics skewing aggregate trucking company safety data. The companies that do stay or enter the market then increase premiums to offset this increased risk, engage in more careful underwriting reviews, or both.
Rely on an Experienced Philadelphia Truck Accident Lawyer If You Were Injured In an Accident
The practical impact is that many of the safest trucking companies have found it more profitable to self-insure. Companies with semi truck few accidents and sufficient capitalization electing to self-insure, however, deprives the insurance companies of the “healthy” entities it needs to control overall insurance costs. When it seems as if the trucking insurance market is predominately comprised of “sick” trucking companies engaged in a race to the bottom, is it any wonder why insurers are increasing premiums or leaving the market? One thing we can say for certain is that ‘nuclear verdicts’ and high insurance premiums are a symptom – not a cause — of an industry with serious safety problems and regulatory oversights.