Truck accidents are not only on the rise, but their financial implications are also increasing sharply. Factors such as widespread fraud, double brokering, escalating truck prices, and rising labor costs, coupled with an increase in substantial court awards known as “nuclear verdicts,” have led to higher insurance rates throughout the trucking sector.
Insurers report that the financial impacts of truck accidents, referred to in the industry as “claims severity,” have soared significantly over the past ten years.
In recent hearings before the House of Commons transport committee, representatives from the Insurance Bureau of Canada (IBC) indicated that commercial auto insurers have disbursed more in claims and expenses than they have garnered from premiums for several years running.
“There has been a notable increase in the size and severity of insurance claims following roadway accidents,” stated Maximilien Roy, interim vice president of strategy at IBC, to the committee.
Data presented by IBC highlights that both the number of claims and associated costs have risen dramatically. From 2015 to 2023, claim counts surged by 83% in Ontario, 88% in Alberta, and 86% across Atlantic Canada, with costs escalating even more rapidly, particularly a staggering 166% rise in Alberta.
Understanding Claims Severity
“Claims severity refers to the escalating dollar amount associated with each claim,” explained Lee Sherback of Hub International. This increase is indicative of various shifts within the trucking industry’s risk profile. On the liability side, claimants are increasingly pursuing larger compensatory and punitive damages after severe accidents, and insurers are cognizant of the growing U.S. court award amounts.
“We are witnessing many nuclear verdicts in the U.S., and they slowly influence our market,” Sherback remarked. “It’s well-known that trucking often has higher insurance limits, and attorneys are quite aware of that.”
Impact on Insurance Premiums
The value of modern trucks can reach nearly $250,000, a stark contrast to prices from a decade ago. Additionally, increasing labor rates, advanced vehicle technology, and costly replacement parts are pushing repair bills higher for even minor incidents.
“The costs of trucks, parts, and labor have skyrocketed compared to 10 or 20 years ago,” said Sherback. “And cargo has become more valuable.”
Insurers are also grappling with soaring litigation expenses and growing concerns of fraud, with incidents of staged accidents and cargo theft rising, particularly in urban areas. “Cargo theft has remained a significant concern for trucking operations, amplifying claims expenses,” stated Rupinder Hayer of Echelon Insurance.
Market Segmentation and Fleet Assessments
Insurers are increasingly scrutinizing driver experience levels, as past labor shortages have led to more inexperienced drivers entering the field, elevating the likelihood of accidents. “The commercial trucking sector has been substantially affected by the frequency and severity of claims,” Hayer said.
However, the burden of rising insurance costs is not uniformly felt across the trucking industry. Pricing can vary considerably based on individual fleet factors. According to Jean-Sébastien Larocque of Assurancia Nexia, fleets with strong safety records are experiencing a softer pricing environment, while those with poor safety records face greater challenges.
Sherback characterized the current insurance market as increasingly segmented, noting that well-managed fleets continue to benefit from favorable conditions, whereas those with declining performance are encountering difficulties. Insurers are depending more on operational data to gauge risk.
Technology, such as telematics systems and onboard cameras, is emerging as a valuable resource for both fleets and insurers. These tools enable better monitoring of driver behavior and provide critical data to assess risks. Although they may not yield immediate premium reductions, they can help lower claims over time.
“Insurance firms don’t directly pay claims; they finance them,” Sherback stated. “Ultimately, the expenses associated with these claims always find their way back into insurance costs.”
