The increasing expense of truck insurance is causing some smaller fleet managers to prepare for potential financial challenges, leading drivers to rethink their vehicle financing options.
Insurance rates for vehicles are on the rise overall, but many commercial truckers find these costs harder to substantiate. The increase is attributed to “unfavorable underwriting experiences, rising loss severity, and increased claims litigation,” according to Jim Auden, a managing director at Fitch Ratings, who spoke with Equipment Finance News.
Although the Federal Motor Carrier Safety Administration reported a 2.5% decline in large truck crashes from 2021 to 2022, the American Transportation Research Institute (ATRI) anticipates an increase in commercial auto liability premiums in the coming years “due to escalating costs and unsatisfactory performance in the prior policy year.”
The increase in insurance rates isn’t directly proportional to the rate of accidents; ATRI’s 2022 survey of 82 national carriers showed that “the escalation in insurance costs from 2009 to 2018 significantly outpaces the nominal increase in crashes,” compared to previous years.
Overall, truck insurance premiums have nearly doubled over the past decade, registering a 47% increase to 8.7 cents per mile. This rise has been influenced by various factors including safety concerns, economic conditions, rising litigation expenses, and persistent underwriting losses.
Insurance Challenges for Financing
Smaller operators are feeling the strain of increasing insurance costs the most, while larger operators are facing more complex legal issues.
“Claims severity and litigation challenges are more pronounced with larger vehicles and fleets,” Auden noted. “Insurers encounter greater challenges with large commercial auto accounts, suggesting that rate hikes and underwriting modifications will likely continue into 2024.”
Economic Pressures on Drivers
Costs are escalating universally; “Freight rates are down, fuel expenses are up, and insurance rates have doubled,” said Jason Spates, CEO of Truck Lenders USA. He mentioned that truckers nationwide are reporting reduced incomes.
“Recently, we’ve approved financing for some applicants who opted not to proceed because their insurance costs are higher than their truck payments,” he added, noting that such situations haven’t occurred in his 20 years in the business.
Impact on Vehicle Valuation
Spates further explained that insurance companies often fail to cover the insured values of trucks. Vehicles bought during the pandemic are now valued at 25% to 50% less at auction, resulting in rapid depreciation.
As a result, if an operator owes between $60,000 and $80,000 on a truck and suffers an accident, insurance payouts might only be $30,000 to $40,000, creating an immediate deficit.
Concerns for Smaller Fleets
Concerns over rising insurance rates are paramount among smaller fleet owners. Walsh from The Pete Store noted that the impact is significantly greater for smaller fleets compared to larger ones.
He further remarked that premiums have been increasing for years, largely due to the increased values of long-haul rigs, which are more expensive and technologically advanced, thereby contributing to elevated insurance rates.
Projections for Future Rates
Insurance rates more than doubled during the 2010s and are expected to keep rising, driven by an uptick in freight movement following the pandemic slowdown, as indicated by ATRI. Their 2022 study on trucking operational costs highlighted that low traffic during the pandemic caused premiums to decrease, generating record profits for the auto insurance sector.
Specialized carriers with smaller fleets are often the most affected by these rising rates. ATRI’s 2022 report found that while the average commercial auto liability insurance climbed to 8.8 cents per mile, smaller carriers paid roughly 1 to 4 cents more per mile than larger counterparts.
