Dawg On-It Trucking Pawedcast

14. Trucking Insurance Hard Market

May 15, 2020 Chris Harris, The Safety Dawg Season 1 Episode 14
Dawg On-It Trucking Pawedcast
14. Trucking Insurance Hard Market
Chapters
Dawg On-It Trucking Pawedcast
14. Trucking Insurance Hard Market
May 15, 2020 Season 1 Episode 14
Chris Harris, The Safety Dawg
Transcript
Harris:

Hey, it's Chris Safety Dawg here. Welcome to the Dawg On-It Trucking Pawedcast and who do we have on this week's show? We have Chris Harris Safety, Dawg. That's right. That's not a mistake. I'm doing the show all alone this week because I want to talk about trucking insurance and the hard market that we're in, and what the heck you can do about it. All right, so with that, let's get on with the show. Welcome to Dawg On-It Trucking Pawedcast. I'm your host, Chris Harris, Safety Dawg. And when it comes to trucking safety than Dawg Is On-It. Please if you would show your appreciation for the podcast by leaving a thumbs up a comment a rating So thank you very much. I appreciate you and your time that that takes. Now let's get on with the show. Hi, welcome back. It's Chris. Again, Safety Dawg. We're talking about the trucking hard insurance market. And first off, let's talk about what is a hard market or a soft market. So let's just quickly look at a soft market first. Soft market has great insurance premiums, meaning that they are low and they are also very broad, they will cover an awful lot. The soft market also has relaxed underwriting criteria, which means the underwriting is less stringent. For instance, a number of years ago, a lot of carriers had no problems hiring truck drivers, the insurance company We're letting everybody drive a truck. There's also what's called insurance capacity. So when the insurance companies have lots of money in their their companies, they're able to write more insurance. And so when they have lots of capacity, they can write more insurance at lower rates. And there's not too much. Sorry, there's a lot of competition amongst the insurance companies. In a soft market, the insurance companies are chasing you trying to get you to switch companies come over to us, we can do a better job, we can do it cheaper, we're more efficient and all that kind of stuff. So a hard market is pretty much the exact opposite of what I just stated. So you've got high insurance premiums, and right now I'm hearing the average insurance premium. Amongst mind clients rate increases are five to 10. Some of them 20 25% some of them not even being offered renewal terms. So high insurance premiums, more stringent underwriting, which means underwriters are being a lot more difficult in what companies they are going to approve and offer renewals or insurance to, and they're being very tough on who, which drivers are going to be allowed to operate the trucks. There's also a reduced capacity amongst the insurance companies, and that means they're tight for money. They don't have a lot of money out there. And so they are being very picky as to who they are going to offer insurance to, and there's absolutely less competition amongst the insurance providers. You probably already know this right now. There are just as A small number of insurance providers that will offer trucking insurance to trucking companies a very small number, and they're not falling over themselves like they were a few years back to get your business. So that's what a trucking hard market is. Why do we have a hard market? The main reason I'm being told by the insurance companies is that they haven't made money. They haven't made a profit. And why haven't they made a profit? They certainly charge you an awful lot of money. Well, the court settlements have been outrageous. For especially those companies who traveled to the States, the insurance settlements in the States, as we all know, have been enormous. The there's a term in the insurance industry that you may have heard of before called New Killer verdicts. And one insurance friend defines a nuclear verdict as anything over $10 million. Well, there's been a lot of verdicts where the injured or the fate of people who were killed their families have been awarded a heck of a lot more than $10 million. So that's a new killer vert vertic by some people's definition anything over $10 million and if you don't have $10 million dollars worth of insurance and in how hard market there's a lot of companies that don't have that kind of insurance because it's so gosh darn expensive. Well, it's a worded you know, I hope you know, anyways, that anything over your insurance limits you are responsible for, so if you have $5 million worth of insurance And the settlement or the court awards, a $10 million settlement, your company is responsible for the 5 million in excess of the base policy. So, and this is where you really do need to talk to your insurance broker. And just while I'm talking about that, if you're a trucking company, I would urge you, Please investigate who you have, as an A has have as a broker. You really need a trucking insurance specialist to be your broker. So make sure that you are not using the same person who does your house in your car and the other things. They are not likely they are not at least a trucking insurance specialist. There are some really We are so fortunate to have some of the best brokers surrounding us in the trucking industry, but you've got to seek them out. The ones who are not Eligible are worth their weight in gold, they will protect you. And just while we're talking, or just while I'm ranting about that, what does a trucking insurance broker do? Well, they are there to protect you. You need to have several people in your stable are in your influence that you trust and believe you need to have a banker, a lawyer, an accountant, and an insurance broker. These are people who you seek their advice. You seek their advice, you go to them and you say, this is what I'm planning to do. How is it going to affect me? Well, your insurance broker needs to be in that circle of influence with you to help you plan and navigate potential risk. That's their job. All right, so make sure you've got a trucking insurance broker. So we are in hard market I I for one would not like to be A trucking insurance broker at the moment. For some of you, you may know that back in, I believe it was 2008. I was a trucking insurance broker for a number of months, about 18 months just over a year and a half for about a year and a half. And I'll tell you, I found it to be one of the most stressful occupations in 2008. If you remember that market was not a good economy. So there was a certain amount of stress. But compare that to 2020. And I don't think there is any comparison. The stress that the insurance brokers are under at the moment is enormous. When I talk to my friends who are brokers, they tell me that it's not fun at the moment, going to see good trucking companies and saying you're getting a 15% increase. It is quite stressful. And of course, going to some companies to say you're not getting renewed. Alright, so that's briefly soft market, hard market, in the insurance business. For the trucking in what is a hard market, it is terrible at the moment to try to get a driver approved for a smaller fleet. You may as well jump through fire hoops. It is very difficult. And it's not just one insurance company. It is all of the trucking insurance companies that you are having the same problem with. So if you're thinking about switching trucking insurance companies, because you can't get drivers approved, I don't believe it's going to be any better at the next trucking insurance company. You might have to look at your processes and exactly what it is that you're doing in order to get drivers approved. So that's soft market. What is a hard market Why are we in the hard market is basically the trucking insurance industry has not made a reasonable profit. What is a reasonable profit? Most trucking insurance companies operate loosely by these numbers. All right. If there's 100% of revenue, they want 60% or 65%. That's what they schedule or plan to pay out in losses 65% of the premiums that they collect, they think they will pay out of the losses. insurance industry generally has a 30% overhead. So if you add 30% to 65%, you get 95%. So they are budgeting for a 5% underwriting profit. That's their budget. And remember that they have shareholders that they must answer to so a shareholder of course is an investor and the investor is not going to make a reasonable return on their investment. Why should they give it to a trucking insurance company? They're in competition with everybody for those big bucks. So they look at it, there's two revenue sources for trucking insurance companies. There's the underwriting profit, which I just said, they try to make 5%. And then there's the investment side of the equation where they take off all of the insurance premiums, of course, and if they're having a good year, they've got money that they can invest, and this is what they do. And so they get a return on their investment. Well, of course, you know that stock markets have not been all that great. As I'm recording this, we're in the midst of COVID 2020. COVID-19 is the pandemic and stock markets, of course, have crashed. And in the past year, two years, let's say that we've been in the hard market, there has been pretty good growth in the stock Previous to the pandemic. However, insurance companies are highly regulated. And they can only invest in certain qualities of stock. You know, the good stuff, the things that don't give you the best return, but they give you a almost a guaranteed return. So things like banks and stocks like that. So the returns are not great, but they are highly regulated because, of course, the government's really regulate insurance companies because they want the insurance company to be financially sound when you the trucking company needs the insurance company. So, insurance companies, by the way, are audited on a regular basis by the government, whether it's the federal government depending on their situation, but they are regularly audited by the government to make sure that they have have enough enough cash reserves for the claims that we know about and of course for the unreported claims that we that the insurance industry doesn't know about. So that's a little bit about insurance. And the hard market, they just are not making money and they have made changes to their operating process, in the hopes that they will turn this around and make money. Is government insurance any better? This is a question I get asked frequently by my clients. I'm based here in Ontario. And you know, my clients say, Well, what if I move to Saskatchewan? What if I move to whatever other province that has government offered insurance, not public insurance, and my response to that is always the same. First of all, everybody's got to make a profit, every arm of the government has to make a profit. And if you do, where to go to one of those places. First of all, it's not exactly equal, unless you do a lot of stuff like move there. But regardless, when you need them in a lot of the areas that it is government insurance, they have kept what they pay out, and you can't sue and there's a lot of limits. This is how they keep their premiums lower when you need them. You may not get as much money as what you actually need. So be very careful. If you entertain that thought, again, you need guidance and help. You need to understand it's a complex issue. And I'm certainly not one to speak to it. Talk to your insurance broker. They're the ones that know, but the coverages in different provinces are not exactly all the same, and you need to understand the different coverages the different limits. It's very complex. So that's enough. Think about the hard market. What I really wanted to talk to you about is what the heck can trucking insurance? Sorry, can trucking companies do to influence insurance companies? What can you do? What policies, procedures and stuff can you do to help get the best insurance rates possible? So, one, it is a little bit about losses. All right, you should be monitoring your losses on a regular basis. If you are a trucking company, let's say 25 trucks or less, maybe you should be looking at your last run of least quarterly and reviewing this with your broker, in my opinion, because you want to know what your loss ratios are. If your loss ratio is approaching that 65% that I've mentioned earlier, Then the insurance company is not going to be happy with you. So you need to stay on top of your losses and be monitoring them closely. And with the help of a trucking insurance specialist broker, you can do that quite easily. Now that 65% loss ratio for a trucking company, let's talk about that briefly. And it is not just for the current term. If you look at it, yes, it is you do several calculations. What is my loss ratio for this term? What is my loss ratio over the last three years? And some insurance companies go back five years and say what is the loss ratio over the last five years? And you should be calculating this and it is a simple calculation. It's how much money did you give the insurance company and how much money did they pay out? So it's premiums over losses. That's it simple. It is a simple calculation. And you don't want to be above 65%. Because if you are above 65%, the insurance company deems that they are not making a profit. Even if you're at 70%, or let's say you're at 69% use, you might think, well, they're making 1% profit. Think of it from a stockholders point of view. They are not making a profit if they can put their money in a number of different companies. If one company's only going to pay them back one or 2% Why would that stockholder put their money there, and this is why insurance companies need at least a 5% underwriting profit plus their investment profit. Then they can keep liquidity. Then they keep the cash in the company and people will invest with them. give them their money. Right? It's financial operations are complex for insurance companies. So you should be monitoring your losses. If you're a trucking company greater than 25, or their boats, talk to your broker, get their advice. But perhaps you should be doing your loss run every month, you want to stay on top of it, you want to see the claims, what claims are changing? What claims are not changing. Claims generally stay open for two years, because in most jurisdictions, that is how long somebody has to sue you. Two years less a day, you will often get notified that you have a lawsuit. So that's why they stay open for so long. Let's talk about reserves very quickly. What is a reserve to an insurance company, a reserve to an insurance company is spent money on this not money that they have access to they have to put that money aside in their books, and they cannot use it. And this is one of the things that the government auditors look for. When the government comes in and performs an audit, they will take a percentage of claims that is known about they will read the claims, and they will assign what they think the reserve should be. And then they look at the insurance company and say, Hey, what did you reserve and if it's close, within certain margins, then the government says, hey, you're doing a good job, keep it up. If the reserves are too low, on the insurance company's part, then the government auditors force the insurance company to up the reserves. And this is not good for the insurance company because obviously that is a hit to the bottom line. And they've got to put a lot of money into reserves if they are over reserving as many trucks Companies accused the insurance companies of doing this is probably not happening. Because again the government auditors are looking for that, because if they are over reserving then the insurance company likely is not is likely trying to hide profits and therefore not paying taxes on those profits. And so the government auditors are looking for that they are looking for insurance companies that try to hide money in the reserves so that they don't pay taxes on it. Well, so they're being audited on a regular basis to protect us one. They are we are being protected against over reserving and we are being protected against under reserving because if it is under reserved, then when we need that insurance company they may have gone bankrupt. So the insurance auditors that from the government do a An essential job to protect us and us being the same process happens for all property insurance. Everybody is being audited. So just be aware of that. However, it is not all about losses. If it was only about losses, I may not be in business. Right now I'm helping several insurance companies right now, during this pandemic. I've got two clients. And understand that I can't work with a lot. I'm a solo entrepreneur, but I'm working with two at the moment, whose losses are pretty darn good. Whose losses are pretty darn good. Recently, I helped one insurance or one trucking company, their losses over the last year, or 30%. over a three year period. We're I think, around 35%, and over a five year period, again, was in the 30s. The insurance companies that were in Ensuring them at the time, we're making good profit. And yet they got threatened with non real as sorry, not threatened, they were non renewed. So it is not all about losses, it is about your risk management. And to that end, in the show notes below, you can click on a link and there is an insurance audit checklist that I'm going to be referring to for a great deal of this podcast. But I would encourage you to download the insurance checklist so that you can be ready when those safety guys from the insurance company come in and perform their they like to call it a review or an assessment. I like to call it what it is it's an audit. And generally speaking, the audit can affect your insurance premiums by I think 20% or there abouts or cause you not to be renewed at all. All. So these insurance safety people are very important to you and your company. And you need to understand that you need to treat those people as if they're hugely important to you. Because they are. Now what do I mean by cause you to be non renewed? If the safety report goes back to the underwriter and says, Hey, we really shouldn't be on risk because these people don't have stuff under control, even though their losses are low. It's an exposure to us. Well, that could cause the insurance underwriter to say, Yep, we're off risk. What do I mean by a swing of 20% on your insurance premium? Well, if your insurance premium was going to come in at and I'll just throw numbers out just to have some fun with it. $100,000 it's an easy number for me to do math. Well, it really good report from your safety person. could drop that by 10%. So you could save $10,000 on that, that's a pretty nice savings. If the report was not good, it could easily go up to $110,000. So add 10% on to that. For a poor safety report. Well, between 90 and $110,000, that's a 20 point swing. So that's where I get my 20%. And I've talked to different people, as you know, my history is with Old Republic, but I do have friends and associates at pretty much all the other trucking insurance companies. And they agree with that assessment. That Yes, the report can absolutely affect you and your company by easily 20%. So take them seriously don't be like some of my former customers. And remember, it was six years ago when I worked for an insurance company but I can remember walking into a trucking insurance company and the owner would go, Oh, geez was that today? That's tells me right there that I wasn't on his radar that I wasn't important to them. Make sure you are prepared to greet the insurance safety person, as if it is a hugely important meeting, as if this meeting could save you thousands and thousands of dollars because it can. So it's not all about losses. Let's first of all, before we get into the insurance checklist, let's talk about safety scores, your CV or yours SMS or your provincial profile. So safety scores if you have a bad safety score in Canada, if you are conditional, you're going to have a hard time with insurance in In the United States, if your SMS has alerts or an alert, just one, you are likely going to have a hard time with insurance. So what do you do about it? We all know that it takes time for you to implement change to affect the ratings. It can take, often six months to a year. Well, first of all, I said effect change. What is your plan to affect change? You should have this document in writing and convey it to your safety person. Let them know. I recognize there's a problem. Here's my problem. You can see it. This is what I'm going to do about it or this is what I've already implemented, and I'm doing about it. And then ask the safety person. Do you have any suggestions? Can I enhance this further? What more can I do? Because Don't forget those who share insurance safety people, they are going to see many trucking companies in a year. Again, back my Old Republic days, I often had between 60 and 90 insurance. So if I was going to see every one of them a couple of times a year, I've got a great deal of knowledge because some of them were pretty darn good trucking companies and they had some great stuff implemented and put into practice. And I would share that with my other trucking companies that I thought I could help them. So your trucking insurance, safety person has a great deal of knowledge. They see a lot of other companies of what they're doing about similar problems. And they can offer great suggestions. So ask them for their help. See what they have to say. Right? They are not the enemy by the way. They are there to protect their company, but they're also there to help you do a great job. At running a trucking company from an insurance point of view. So it's not just about losses, it's about your safety scores. That's the first thing that's very public. And we all know that if you have a conditional rating, or you have an alert, your insurance company is going to be asking some pretty hard and tough questions. Well, if they're going to be asking the questions, have the answer ready. And as a matter of fact, perhaps even before renewal, you should have been having the conversation with both your broker and the insurance company about what is your plan to avoid them asking you the question, tell them that, hey, I'm on top of this, this is what I'm doing. This is what I've implemented, and so on and so forth. So that's that. If you're conditional, sorry, I've made notes here. I'm just looking at my notes, conditional Hi, call a lot of hoops. You're in trouble. SMS alerts. That's pretty bad news. So I am giving away the checklist and I want you to download the checklist. If you haven't yet, hit pause on this recording, download the checklist and let's go through it quickly together. The first thing on my checklist is a drivers list with hire dates and all that kind of stuff. You can read it on the checklist, what are they looking for? They're looking for driver turnover. If you're a company that's been in business for five years, and yet all your drivers only started with you in the last six months. That tells the insurance company that there's high driver turnover, high driver turnover. new employees, we know have a higher incident rate. So that's what they're looking for. And of course, the drivers if they're all new to you aren't familiar with the routes. They aren't familiar with the customers they're familiar with so much that causes crashes to some it's a small percentage, but it is a higher percentage. And this is stuff. I'm just going through what the insurance companies are looking for. Driver hiring criteria is the next thing. You need to have your hiring criteria in writing. And at the moment, I'm urging you to stick to it. Don't make exceptions. If the insurance company accepts your hiring criteria, live with it if you were a small company and small being 25 trucks or less, all right, stick to it, put it in writing and stick to it. Next thing driver qualification files, driver files. The insurance guy or girl is going to look at your truck driver files and they want to see that hey, there's a road test in there given by somebody with some qualifications, so who's doing a road test what makes them good? They may ask that question. They want to see a documented road test. They want to see The three years of references completed and they want to see a complete application form and some other stuff. I'm not going to go through a complete driver file in this rant. But make sure you've got one driver contracts. If you have owner operators, you absolutely need to have contracts. If you are using the driver ink bottle and I'm not going to rant on driver ink, I don't believe that is legal. However, if you do use the driver ink bottle currently, I believe you need a contract with driver, the training structure for the drivers. So what is your onboarding process? How do you bring them on board? And what training Do you give them while you're doing that? And then what is the ongoing training process? The insurance companies want to see this? What is the ongoing insurance or training process, which is why I developed the dog speaks by five minutes safety videos that go out to the truck drivers every week. And it's all documented and there's a quiz and stuff but I'm not selling that today, but I just mentioned that it is available of the dog speaks.com I believe. So the training documents and they need to be in the driver file. Or at least if you keep them digitally, you need to be able to reproduce them quickly and show them to the insurance safety person. And of course if need be, should a crash happen, you want to be able to show them to the lawyers and to the courts and all that kind of stuff. That's why you need training documents. And you know, there's really good training stuff out there. Not just the dog speaks by any means. I would encourage you great training program carriers edge. All right. Good Canadian outfit, infinity out of Texas, good America fit they to offer great training programs. All right. So what is your new hire orientation all about? How do you introduce the company and or the drivers and all that kind of stuff, driver management, the handbook or the policies and procedures that you give to the driver. You need these in writing and you need to be sticking to the policies. All right. What is your logbook audit process? Yes, I know most of you are on ELD. Now and in Canada we go LDS are still saying june of 2021. But what is your process? Just because you have an ELD doesn't mean that you audited the ELD. drivers can still drive illegal. So when a driver does drive over hours, what is it that you're doing about it? You need to document your logbook process. What is your fatigue management practices? Do you have a fatigue management practice? great resources online and a link. The name escapes me but I'll link to it below. I believe it's free. That you can put your drivers through a fatigue management process. This program online for free. All right, so I'll link to that below when I remember the name, Ws, IB or alternative program. So first of all you need, if you're having employees, you need Wi Fi coverage for your employees, if you're doing driver Inc. I'm not going to go there. But if you've got owner operators, you are going to have third party coverage. I hope, whether it be NFL or one of the other programs that are available for that, and the insurance industry likes to see that you're paying for it and then source deducting it from the owner operator. That is the only way the insurance industry believes that you will know if coverage ceases, is if you're paying for it and then deducting it from the owner operator. That's what they like to see. So that's the WSI B or alternative programs and controls driver performance incentive. What do you have in the way of rewarding your drivers when they do an outstanding job? Accident register going back five years, this is what the safety person is going to be looking at. Because you've may have switched insurance companies, or you may not have reported every claim to your insurance company. And we won't get into that would be another good episode perhaps. But they will be looking for that your current level two CV or with a 24 month history and your current SMS printed out. And again, the safety person is going to be looking at all these things and asking you questions about certain accidents. Think of it from the insurance company's point of view when the safety person comes in, whose file Do you think they're going to pick? They're going to pick one likely that's listed on your CV or in a negative way. So one that's had either a collision or one that has had a bad event at a scale because those things pop out on those safety scores. Alright, so the most recent 12 month kilometers your if the reports basically, they're going to be asking you for a list of cargo types and the percentages of each is very important. Just saying general freight does not cut it. In most cases, a list of your major shippers listed a vehicle list that includes your Vin, your year make a model. Some insurance companies also asked you for the current value. And remember, I didn't touch on when we're talking about claims and everything. I didn't talk about the price of these trucks nowadays. One of my customers told me that a headlight is now 1200 dollars. They have all kinds of computer stuff in the front of their trucks. They've invested in put the animal strike bumpers on the front of the trucks trying to To protect the, the devices at the front they have the cruise control with the automatic braking and all that kind of stuff, the adaptive cruise control, I guess it's I think it's called. And that's all on the front end of your truck. So a rear end crash or destroying the front end of your truck is going to cost a thousands and thousands of dollars. When I was with the insurance company, a hood was like 10 grand, I can't imagine what it is today with all those computer components significantly more so a list of your vehicles anyways. And the current values is really helpful. Your maintenance policy and writing the insurance safety people want to see and of course they may be looking at your maintenance file. Be prepared to give a detailed history of the company and where do you go the traveling. So that's all what I believe is necessary and then there's some nice to haves and who owns a company What is their history what makes them qualified to own a trucking company? collision rate per million miles is really cool to have. Because then you can. If your collision rate per million miles is good, then you can brag. Don't forget that this interview is your time to be a salesman for your company. As I already stated, it can be a 20 point swing in your insurance premium. So this is your time to sell, sell, sell. And when I say sell, I mean promote what the good stuff is that you are doing to reduce collisions. That's what the insurance safety person wants to hear. collision frequency, and then the severity loss rate. All right. If you can show the insurance company that you're keeping track of all those things, then I think they will be impressed. Alright, so that's my rant on trucking insurance today. Hard insurance market and what a trucking company can do about it. Thanks for so much Safety Dawg. I hope you love the show as much as I did. Please leave us a like a thumbs up a review a comment a rating is a thank you so much. And I do really appreciate your time. And join us again next week for another exciting interview.