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Guitarist James Taylor paraphrased the caffeine-fueled patter of an industry when he penned the line "Breaker No. 9 big buddy put your ears on me now."

Taylor, on his 1979 album "Flag" and his country-twanged tune "Brother Trucker," was using the patois of truck drivers on citizens band radios to ask a fictional co-driver to listen in.

But, according to some experts, insurance companies who are now pursuing the trucking insurance market do so at their own peril and may end up forming counterproductive relationships with their clients.

The lubricant that is attracting more companies to trucking is a blend of better safety records and high premiums, brokers and experts say, particularly for carriers insuring companies transporting inert cargo.

According to preliminary 2006 data from the Federal Motor Carrier Safety Administration, the number of nonfatal accidents involving large trucks declined in 2006 from 2005. The agency reports that 129,494 large trucks were involved in nonfatal crashes in 2006. That's a 7.37 percent drop from 2005, when the agency reported 139,810 nonfatal crashes.

Injuries involving large trucks were down even more significantly. There were 81,312 injuries from collisions or crashes involving large trucks in 2006, which is an 11.6 percent drop from 2005's figure of 91,993.

Preliminary data of fatalities in 2006 is not yet posted.

But the number of incidents is down, that much is clear, and that's a factor that has insurance companies entering the market that perhaps four years ago may have passed up the industry like it was an unwashed hitchhiker.

"There's been a whole host of them, insurance companies coming in my door wanting to talk to me about my trucking book that to me were sort of on the outskirts of it," says Daniel Morton, a vice president in broker Hilb Rogal & Hobbs' Schaumburg Transportation Unit in Schaumburg, Ill.

Morton, who got his start in transportation more than 15 years ago by washing and driving trucks while he was in college, says a lot of newcomers might not know what they are letting themselves in for.

"It's funny to hear their approaches to the market because I think a lot of them view the marketplace as well, trucks are safer now and they can get in and write some trucking business because the way the market is sitting they can still get a pretty good premium for their buck," Morton says.

Annette Nitti, a senior vice president in Marsh's Chicago office, says those insurers getting into the trucking industry would be well advised to get in it for the long haul, no pun intended.

She says anyone looking to make money in a two- to three-year window is going to get spanked sooner or later. "You have to expect a big pop every two or three years on a trucking risk," Nitti says.

Although as a broker to companies in the larger category, which she defines as companies with at least 300 power vehicles, Nitti says she's not seeing many new players.

Key to that are the larger companies that are getting 10 percent premium discounts in a softer market aren't going to be inclined to switch underwriters.

Smaller trucking companies may be a different story, she says. The specialty carriers are certainly a different story.

Try telling a caustic chemical or petroleum hauler that more people are looking for his business and he might laugh if it didn't hurt so bad.

Andy Walker, a vice president of risk management with United Petroleum Transports Inc., based in Oklahoma City, Okla. says his company endured premium increases as a percentage of revenue of a point per month from 2006 into 2007.

Walker and his fellow members of Arlington, Va.-based trade group The National Tank Truckers Inc. are still hemmed in by the fears spawned by Sept. 11. The scenario of someone hijacking a tanker filled with hydrofluoric acid or some other flesh-eating substance and smashing it into a population center is something underwriters can't get out of their heads, Walker says.

TRADITIONALLY FAT PREMIUMS

For carriers insuring companies hauling less dangerous freight, a second factor driving the move into trucking is that the premiums become seductive for underwriters looking for ways to build revenue in what is overall a soft market.

"I have been doing this a long time it just always happened in order to meet premium writing expectations in a soft market you will have some that will run to transportation because there are big premiums there," says Mark Langer, a New York-based transportation group leader for Marsh.

But he says those that aren't experienced in vetting out a trucking company's safety strengths might regret it.

"Sometimes they are not as savvy as to what makes a trucker a good or a bad risk." Langer says.

Morton says many insurance companies may be able to wangle their way into a trucking company's door with good deals initially. But if the underwriters get hit with large losses in a year or two's time, they might want to get out of the industry as glibly as they got in. That initial savings on lower premiums for a motor carrier can start to look like not such a good deal when the carrier has to go to the expense of finding a new insurance underwriter.

"I try to be conservative about it and advise my client that look, they could be a fine insurance company, they could have a great rating, they could be established and large, they sponsor a golf tournament and everything is great, but the question is not are they going to give you the best price this year, it's what's going to happen in three years," Morton says.

Langer says it's a cyclical drama.

"I've seen it happen time and time and time again," says Langer.

WORKING WITH EMPATHY

Having said that, Langer says the potential pratfall of greener insurers entering the market is being offset by what he says are several positive trends in the trucking industry's efforts to make the risk protection less expensive.

Langer says costs of coverage for most transportation companies ranges in the 3 percent to 7 percent range. For a high-risk industry that operates on low margins, he says the risk management and insurance portion of a trucking company's operations can be the difference between a profitable transportation company and an unprofitable one.

He says, in general, the industry has done things a lot smarter lately.

One solid trend that Langer cited is what he referred to as the empathetic technique in trucking risk management. Where historically trucking companies tried the "deny, deny and defend" approach to settling claims, Langer says they are doing a much better job of owning up to an incident and lending what support they can to a family or company which may have suffered a serious injury or a fatality as a result of a collision with a large truck.

An aggressive plaintiff's lawyer can always obstruct that technique by blocking access to the injured party. But in cases where the company can maintain communications, Langer says an empathetic approach has to be sincere or it can backfire.

"It has to be done in a non-Machiavellian way," Langer says.

Langer says trucking companies and their insurers are also managing costs by compressing claim settlement times. Cases that used to take four or five years to settle are now being resolved in as few as nine months. With every month that goes by seeing increases in health costs, Langer says it only makes sense for insurers and truckers to control those costs with quicker settlements.

Even for the beleaguered tanker industry, innovations like computerized brake systems that override trucker drivers who go into turns too fast are helping to improve safety, United Petroleum's Walker says.

But even though the number of trucking incidents is down, those constantly escalating medical costs, regardless of how quickly a claim is settled, means that the size of claims coming out of the box is much higher now than it was four or five years ago.

"The problem is that in reality while trucks are safer now, large losses are still increasing and will continue to increase, " says Hilb Rogal and Hobbs' Morton. "What three years ago was a $500,000 claim could today be a million-dollar claim. So you're seeing premiums dropping but the catastrophic severe losses increasing. To me, that's sort of the perfect storm for an insurance company."

ERIN FOGG is associate editor of Risk & Insurance®. DAN REYNOLDS is senior editor of Risk & Insurance®.

October 15, 2007

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