The transportation industry continues to face a tough insurance market. According to a report by Risk Strategies, premiums are rising across the board, with physical damage coverage increasing by 20% to 25%, umbrella liability by 10% to 30% and auto liability by 10% to 20%.
During an earnings call with analysts discussing Q4 2024 financial results, J.B. Hunt (CCJ Top 250, No. 4) EVP and CFO John Kuhlow noted that insurance premiums are expected to remain under inflationary pressure. The carrier has paid more than $300 million annually in insurance costs over the past three years, an increase from $165 million in 2021.
In the same period, Saia (No. 19) also saw claims and insurance expenses increase by 16.6% year-over-year, driven by higher claims activity and unfavorable development of open cases. Werner (No. 14) also experienced higher than normal insurance expenses, including a $19 million impact from unfavorable development on prior period claims.
Risk Strategies’ report noted that one major factor is the growing number of less experienced drivers, which has led to more frequent and more severe auto liability claims. Over the past two years, the average cost of these claims has jumped from $13,000 to $38,000, influenced by social inflation and legal trends pushing premiums higher.
Premium pricing trends
Scott Holeman, director of media relations at the Insurance Information Institute, noted while some key indicators that influence auto insurance premiums are starting to improve, it will take some time before those changes lead to more stable or lower rates.
According to the institute's analysis in 2023, the industry saw progress, Holeman noted. The combined ratio – a measure of profitability — improved to 104.9, a 7.3-point improvement over 2022. Direct premiums written (DPW) also grew by 14.3% – the highest increase in over 15 years – driven largely by rate hikes to keep up with rising loss costs tied to inflation.
Holeman said these are positive signs, but they follow one of the worst-performing years, too. In 2020, insurers issued around $14 million in rebates, anticipating fewer claims due to lockdowns. Although losses did dip briefly, riskier driving behavior soon returned, bringing more accidents, injuries and legal involvement.
“The number of drivers on the road has returned to pre-pandemic levels, but the driving behavior that led to the high losses has not improved,” Holeman said. “More accidents with severe injuries and fatalities have driven up claims and losses in terms of both vehicle damage and liability, while attracting greater attorney involvement and legal system abuse.”
He pointed out that rate changes reflect more than just inflation, also driven by accident trends, repair costs, litigation and driving behavior.
“Reduction of risk and underlying cost factors will be key to any future rate reductions,” Holeman said.
Improving insurance premiums
Risk factors that impact carriers’ insurance premiums can vary quite widely, ranging from location, length of typical routes and vehicle size, said Nick Saeger, assistant vice president of products and pricing for transportation at Sentry Insurance.
Safety experience (measured using Federal Motor Carrier Safety Administration data) and a driver’s motor vehicle record are significant, too, Saeger said.
“Loss history is a significant piece of the puzzle," he added. "Motor carriers that have had accidents in the past are more likely to have accidents in the future."
The quickest way for a fleet to improve their risk profile is to reduce claims and safety violations, Saeger said, but of course, the real question is how to make that happen.
“Having a strong safety culture that starts at the top and permeates down throughout the entire organization is a great place to start,” as well as hiring drivers who prioritize safety, he said.
One of the best ways to improve a motor carrier’s safety profile, especially for one with past claims or safety violations, is to work with their insurer’s safety consultants, said Steve Bojan, director of safety services for transportation at Sentry Insurance.
Saeger pointed out that rate increases are hard to avoid. He explained that the commercial auto insurance sector has been unprofitable for years with the exception of a short period in 2021 when claim frequency dropped due to pandemic-related shutdowns.
“That includes a projected 111% combined ratio last year, which means that insurers paid out $1.11 for every $1.00 of premium they took in. Rates need to increase to offset that current state,” Saeger said.
A major driver of rising costs is the growing size and frequency of claims, he added. Legal system abuse by some plaintiff attorneys has led to social inflation, contributing to more large-scale nuclear verdicts, leading to a rise in third-party litigation financing.
“This cycle only further ratchets up the pressure on loss costs and increases the need for rates,” Saeger explained.
Despite these challenges, fleets that make safety and risk management a top priority can help control costs over time, he said. Strong safety programs, effective driver training, and the use of telematics and other technologies can significantly reduce claims and improve insurability in a tough market.
[RELATED: Telematics improves safety, reduces insurance costs]
Using technology right
While investing in safety-focused vehicles and technology is valuable, the real impact comes from fully integrating those tools into everyday operations, Saeger said. This means using data to coach drivers, customize training and continuously improve safety practices.
“The most progress comes from consistent effort,” he said.
Investing in a telematics program that leverages dashcams can be a game-changer for fleet operations, Bojan pointed out, with video footage enabling safety training to be more effective by showing actual risky behaviors.
[RELATED: Telematics data isn't enough for insurers]
Beyond improving safety, Bojan said that telematics can also serve as an exoneration tool by providing objective evidence in what are otherwise hard to determine situations. In his experience, he said that footage often serves as crucial, unbiased evidence in situations where fault is unclear.
Telematics data also gives underwriters a more detailed view of a fleet’s risk profile, allowing for more informed decisions, said Pam Jones, director of strategic accounts at Fusable’s Central Analysis Bureau.
Participation in telematics programs can also play a role in pricing, Jones added. Fleets that opt out often face higher premiums, in part because they miss out on discounts available to those sharing data. Choosing to share telematics and camera data signals to insurers that the fleet has confidence in its safety program, data quality and driver oversight.
