Canadian Underwriter


October 16, 2020   by Adam Malik, Managing Editor

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About 200 vehicles were involved in a major crash outside of Montreal in the middle of February, including at least 15 commercial trucks, according to news reports. Neither the extent of damage to the trucks nor the damage caused by the trucks is known. Video footage showed heavy-duty vehicles in the pileup.

A big incident like one this doesn’t happen very often. But plenty of smaller incidents make those working in the commercial trucking insurance space nervous. The sector has been plagued by rising premiums over the past few years, a challenge that isn’t expected to subside for at least a couple more.

And that’s just the tip of the iceberg.

The World Health Organization declared COVID-19 to be a global pandemic in March 2020, exacerbating an already fraught situation for the trucking industry. Canadians needed the trucking sector to keep the supply chains moving. Trucking was deemed an essential service not only to keep shelves stocked in grocery stores, but to ensure personal protective equipment was being delivered to frontline workers.

And so, while many Canadians received premium rebates for parking their cars in their garages to work from home during the pandemic, truckers remained out on the roads, meaning their risk remained high, as did their premiums. While brokers, underwriters, carriers and clients are working together to lower the trucking industry’s risk exposures, don’t expect any quick solutions, brokers have told Canadian Underwriter. Indeed, the sector appears destined for a hard market over the long haul.

How did we get here?

Similar to personal auto, trucks are more expensive to repair following a crash.

“When you have a small claim, like a bumper claim,” says Joe Palmer, director of transportation at Gallagher Canada in Hartland, N.B., “with all the technology that’s in the trucks with sensors and lane-departure warnings and cameras, a simple repair is significantly more expensive today.”

Higher repair costs also reflect the significant amount of damage done when a truck is involved in a collision. “If a truck hits a car, versus a car hits a car, it’s a whole new game,” says Jurenda Landry, director of client services at KASE Insurance in Toronto.

Driver skill is also a significant factor. Like many industries, fleets need a growing number of people to fill roles. As more inexperienced drivers get behind the wheel, up goes the risk.

“It’s known in the industry that a driver with under three years’ experience is three times more likely to get into an accident,” Landry says, adding that it takes years of being on the road to understand how to react to different driving situations.

The Canadian trucking industry has responded to a driver shortage in part by hiring drivers from other countries. But even when experienced drivers from outside Canada get behind the wheel, their on-road experience comes from operating vehicles in their home country. “They’re not experienced with our roads, our weather, or our equipment,” Palmer says. “Things are different [here] and they have to adjust to it.”

As for the trucking insurance world, new carriers jumped into the space while times were good, creating a race to the bottom in terms of rates. As claims increased, tail liabilities piled up, and so-called nuclear verdicts from the U.S. hit. Carriers decided to step away from the business, says Scott Cober, Toronto-based national practice leader for transportation with BFL Canada. And when they did, “it left that capacity shortage we’re seeing now.”

The COVID effect

Things didn’t get any easier after the pandemic shrank the economy.

“The scene hasn’t changed,” Landry said. “The same mountain exists, the same  challenges are still there. The only thing that’s truly, truly changed is that insurers have taken time to re-evaluate risks on their end.”

Shrinking capacity was and always will be an issue, says Angelique Magi, national vice president of specialty solutions in trucking and specialty auto at Intact Insurance. “That isn’t any different now or going forward for the industry.”

However, brokers praised insurers for stepping up to help clients affected by the sudden change in circumstances  due to the pandemic. For example, insurance companies would typically never do a mid-term change for a fleet pre-COVID, Cober notes. “I think the industry rose to the occasion: Every major fleet insurance company did do that, and [they] certainly came to the table to give premium relief for the fleets.”

Landry agrees. “Overall, our insurer partners that are heavily into trucking have been really great and responsive and understanding. That was really a heartwarming thing for us to see,” she said. “I don’t think everybody will say this, but there has been a decent amount of compassion from our insurer partners during this. A few insurers actually stepped up and said, ‘Okay, let’s look at this. Let’s see what we can do now for you guys and we’ll re-evaluate it in three months.’”

Not only did that showcase broker value to clients, but customer loyalty to the insurer increased. In the same way that a positive claims experience may keep a customer with a carrier despite a higher rate, being flexible had the same effect.

“In the trucking industry, everybody chats with each other,” Landry says. “They’ve definitely seen the efforts insurers have made and that [brokers have] made. From that, we’ve created a little bit more loyalty with our clients, more so than we already have. Insurer loyalty is growing, which is really cool to see. That’s not a common thing.”

One thing trucking companies  learned from COVID-19 is the importance of diversification. “A trucking company hauling products that are non-essential versus a company that’s hauling food is obviously going to experience a downturn based on the impact COVID has had on our economies in Canada and the U.S.,” Palmer observes.

Companies most affected by the shutdowns are looking at what else they can haul in order to stay operational. But they have to keep in mind that their drivers and staff have qualifications and experience to haul certain types of freight. “You don’t want to get into hauling something that’s totally different [and] that you don’t have experience in,” Palmer says.

Other trucking companies looked to expand their business radius and transport to areas they didn’t before, attempting to seize an opportunity to expand their operations. For clients looking to move into the U.S. or beyond their provincial borders, “those were discussions we had to have with underwriters because there were pricing pressures,” Cober says. “And if the market didn’t really do cross-border, certainly we had to try and find a solution for them.”

Another pandemic-related challenge is that some drivers don’t want to get behind the wheel due to safety concerns. Some of the busier trucking companies found that not all drivers were comfortable taking to the road as infection rates spiked, especially south of the border.

“So that’s been another reason why trucking companies’ productivity has dropped. Even though [the companies]    may have the drivers to go, [the drivers have] elected to stay home so they don’t expose their family or themselves [to the virus],” Palmer says.

Furthermore, drivers essentially live on the road and finding rest stops becomes a challenge. “So you can understand why some of those people say, ‘I’m just going to stay home until things open back up to more of a normal,’” Palmer says.

When fleets are parked, companies use the time to fix up their operations.

“I can tell you that our clients have taken their time to fix up everything and say, “Hey, now that nothing’s happening or slowed down or delayed, now I have the time to really look at the training manuals we have,’” Landry says. “That’s where our producers and sales team have really taken the next step.”

Parked trucks allow companies to get their vehicles into proper shape by performing needed maintenance, Palmer notes. “Getting caught back up on some of those things have been a bit of a silver lining.”

Another indirect benefit of the pandemic has been to identify and update archaic ways of doing business. Take the following example of a technological change: A company parks its fleet, and a broker gets a call from the trucking operator saying they just got a freight contract. The company needs to get back on the road. At that point, for the broker, “it became that tedious job of calling the underwriter to get it back on the road,” Cober says. “A fair system during the pandemic would be a pure mileage-based one, in which you use the vehicle and, at the end of the month or week, you report it. I think in the future, something like that will make the process much smoother.”

How long will this last?

It’s hard to peg how long the trucking industry will be in a hard market. Before the pandemic, brokers estimated anywhere from one to five years. Could COVID-19 drag things out even longer?

“I don’t know if it will extend the hard market — it’s tough to predict that,” Palmer says. “There is still a lot of uncertainty, that’s for sure.”

In the meantime, brokers are encouraged to gain a total understanding of their clients’ businesses. For example, brokers could ask about their trucking clients’ contingency plans, as Magi recommends. Can their clients dispatch virtually? How many trucks can be parked while maintaining a positive cashflow? Can trucking companies serve their core customers and still move goods effectively? What are their future plans? Are they considering diversifying their business?

Underwriters will need to know all of this, Magi says, as well as the places where the client intends to travel.

Clients should also be aware of the latest advances in technology, she says. That includes the use of dashcams to validate claims or fleet management telematic systems to analyze driver behaviour — and correct that behaviour, where necessary.

“Brokers are going to have to understand that those are the big areas where they’re going to have to educate themselves,” Magi says.

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