By Leo Grimm | Head of Mobility, Munich Re Specialty Insurance
Trucking is an essential business in the global economy, yet it also faces some of the biggest operational challenges. In addition to chronic driver shortages, volatile fuel costs, razor-thin profit margins and rising expenses, motor carriers also must cope with higher cost of risk due to legal system abuse and insurance market dynamics. Inflation trends and high-severity losses increased profitability pressure in the insurance industry, which have led to increased rates for commercial motor insurance.
For many trucking businesses, especially smaller ones, the strain has forced them to shut their doors – interstate fleets in the United States declined by 9,000 in the first quarter of 2023, according to FreightWaves. Those that continue to keep supply chains flowing are struggling to carry the burden. Spot freight rates per mile for U.S. dry van, flatbed and refrigerated trucks have all declined since the beginning of 2022, according to the Bureau of Transportation Statistics, making it harder for freight motor carriers to maintain revenues.
Meanwhile, conditions in the insurance marketplace are challenging due to loss trends, making coverage more expensive. Unfortunately, some motor carriers feel compelled to control their premium expense by purchasing less coverage. That is a mistake, for several reasons.
Reducing insurance policy limits can lead to bigger problems for a trucking business. When economic inflation is causing the cost of materials to rise, even what seems like a relatively small physical damage claim is more costly. Higher replacement costs and materials shortages can prolong the time a motor unit is out of service. Having less insurance to respond may save premium in the short term, but it also makes coverage gaps much more likely. Businesses striving to conserve cash may find their efforts thwarted when a claim arises.
The combination of digital fleet management systems and telematics can optimize the working conditions for truck drivers, increase efficiency, and improve risk mitigation while on the road.
Shifting to exposure management
A better course of action for motor carriers to reduce the cost of risk in trucking is to shift their focus to managing loss exposures in combination with appropriate primary and excess insurance. One method that is showing positive results in mitigating losses is the use of innovative digital technologies, which leads to more foreseeable insurance budgets.
Data, analytics and automation offer opportunities for motor carriers to cut their own operating expenses. The combination of digital fleet management systems and telematics can optimize the working conditions for truck drivers, increase efficiency, and improve risk mitigation while on the road.
Several technologies can be quite helpful in risk mitigation. For example, rearward-looking cameras and crash-avoidance systems can make it easier for drivers to avoid injuries and property damage. Some crash-avoidance systems are capable of detecting workers on roadways, alerting truck drivers to slow down and/or shift lanes. Another emerging area in freight logistics takes advantage of traffic data to optimize routes and avoid high-risk scenarios.
Benefits of sharing risk data
With trusted risk management partners that are committed to supporting motor carriers, sharing risk data from vehicle telematics and other systems can lead to significant advantages. Insurance carriers such as Munich Re Specialty Insurance look at trucking businesses’ financial data, but also consider their data and analytics, which enable us to share insights on safety. Data sharing lets us calibrate driving behaviors into our underwriting decisions. This gives motor carriers the benefit of more favorable consideration acknowledgement for using data to help make their fleets safer.This article was produced by Business Insurance, in collaboration with Munich Re Specialty Insurance Group.