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In today’s market, the ability to access insurance coverage can be a competitive differentiator for your business. When insurance costs are increasing dramatically across the industry, your ability to ensure safe and accident-free driving can distinguish you from your peers.
By Nick Scodro and Tim Shannon
Among the many challenges that waste executives are confronting today, rising insurance costs have been a consistent pain point that we have observed. In particular, the auto insurance market for waste haulers has always been tricky, but over the last 12 months we have seen increased pressure in both rates and coverage terms.
There are at least three core drivers of auto insurance cost increases across the market, which affect all vehicle operators: more accidents, higher costs to repair damaged autos and increased medical costs for injured crash victims. Together, these trends have confounded the insurance industry and made auto insurance an unprofitable line of business for most carriers, leading them to increase rates to catch up with their losses. Additionally, there are other factors that are specific to the waste hauling industry that have been driving outsized rate increases, including the difficulty of hiring quality drivers and the age and condition of trucks.
While the market is challenging, you do have levers to control the long-term trajectory of your insurance costs. The marketplace fluctuates from year to year, but for mid-sized and large fleet operators, your insurance rates are, ultimately, a product of your loss experience. If you have a top-tier safety and risk management approach, over time your insurance costs will be more competitive than your peers, enabling you to compete more effectively for business.
Market Trends
Accident frequency has followed a steady upward trendline since roughly 2011. According to National Highway Traffic Safety Administration (NHTSA) statistics, the total number of accidents increased from 5.3 million in 2011 to nearly 6.5 million in 2017, the last year for which statistics are available. During this period, countervailing trends have been pushing against each other. On the one hand, vehicles have largely gotten safer: new driver assistance technology has prevented thousands of accidents that would have otherwise occurred. On the other hand, there are persistent issues and unfavorable trends: distracted driving, an increasing number of trucks on the road and more total miles driven. The net result has been more accidents.
Adding to this, vehicles have become considerably more expensive to repair once they are damaged. This is largely driven by the cost of new components such as sensors and cameras that are essential for driver assistance technologies to work. Additionally, auto repair is an increasingly skilled job commanding higher labor costs, as knowledge of computer systems and electronic components is more important than ever.
A third component of auto insurance rates is one that most people do not immediately consider: medical cost inflation. Covering the medical costs of accident victims is one of the primary expenses for auto insurance carriers. Therefore, as accidents rise and the cost of medical care increases, auto insurance carriers face greater challenges.
In addition to these three market-wide trends, there are some additional trends that affect waste hauling businesses. Because of these exacerbating factors, insurance losses in the waste hauling industry have been outsized, forcing multiple carriers to shut down their coverage programs for waste haulers. This contraction in the number of insurance carriers in the waste hauling market has significantly stressed pricing.
The first adverse trend will come as no surprise to any waste executive: driver quality and retention. You may be struggling to find qualified new drivers, and you may be seeing increased turnover among the drivers on your staff. Different businesses manage this issue in different ways: some constrain the growth of their business in order to maintain quality standards, while others may soften their driver requirements in order to maintain business or enable expansion. Still others might work their existing drivers more, increasing the risk of fatigue. Unfortunately, when the quality of drivers declines, an increase in costly accident activity is virtually certain. Based on loss trends in the industry and our own observations, this has been a critical challenge for waste haulers.
The second consideration is deferred maintenance. We know that waste and recycling businesses are being squeezed from multiple angles, not least of which is increasing insurance costs. As a result, some executives make the difficult decision to forego repairs or routine maintenance on their vehicle fleet. While this does not lead to accidents right away, a pattern of deferred maintenance within a fleet typically means more insurance claims over time, as the vehicles become harder for drivers to control and the risk of breakdowns increases.
What You Can Do
The single most important thing you can do to control auto insurance costs for your organization is to emphasize driver and fleet safety. There is a direct correlation between the focus you place on safety and your ability to access competitive insurance markets. Below are some critical steps you can take:
• Monitor your DOT/FMCSA ratings and remediate any areas that need improvement. Most insurance carriers with expertise in transportation will incorporate DOT ratings, Central Analysis Bureau (CAB) reports and similar scores in their underwriting process. Any red flags that are identified in these reports will reduce your leverage when going to market with your insurance coverage.
• Perform and document safety checks on your vehicles every day. There are multiple helpful app-based tools that can simplify your safety check process, but anything you do to consistently inspect your fleet will help you catch problems before they turn into safety issues.
• Hire and vet experienced drivers. Insurance carriers look unfavorably on drivers with less than three years of experience, or with a history of violations. You should limit the number of these drivers on your team as much as feasible. If you do hire inexperienced drivers or drivers with adverse track records, you should have clear company policies regarding training and expectations.
• Implement GPS or other vehicle monitoring software and hold drivers accountable for safety practices. Many risky driving practices can be detected via remote tracking, and safety managers can have immediate feedback on unsafe driving rather than waiting for a violation or an accident to bring it to their attention. Any drivers that demonstrate a propensity for risky activity (e.g., speeding, abrupt stops) should be disciplined or potentially fired.
• Train, train, train. Ensure your drivers understand the paramount importance of safe practices. Leverage training resources from your insurance broker or insurance carrier, and make sure that your drivers are up-to-date on best practices for operating your vehicles.
• Evaluate alternative risk structures. Businesses with large fleets may have access to “large deductible” insurance programs, in which the insurance carrier only provides coverage for claims in excess of a certain threshold. These programs lower premiums in exchange for the business taking on more of the risk. Larger businesses that believe in their ability to keep accident frequency under control can reduce their total cost of risk through these types of programs.
Market Dynamics
In today’s market, the ability to access insurance coverage can be a competitive differentiator for your business. When insurance costs are increasing dramatically across the industry, your ability to ensure safe and accident-free driving can distinguish you from your peers. We also recommend working with a broker who specializes in waste businesses: the dynamics of this market are highly nuanced, and you need someone who can help you effectively navigate the insurance process. | WA
Nick Scodro is Head of Business Development at RBN Insurance Services (Chicago, IL), an agency providing trusted risk and insurance advice to mid-sized businesses throughout the U.S. He works with colleagues and clients to develop tailored risk and insurance solutions. Nick resides in Chicago, where he is active with several not-for-profit organizations focused on educational equity and early childhood education. He can be reached at (312) 801-8083 or via e-mail at nscodro@rbninsurance.com.
Tim Shannon is a Vice President with RBN Insurance Services. Tim specializes in writing non-hazardous and hazardous transportation companies along with recycling and scrap operations. Tim provides thoughtful advice to clients regarding insurance coverage and risk management. He can be reached at (312) 861-7667 or e-mail tshannon@rbninsurance.com.
RBN Insurance Services is an experienced team of insurance and employee benefits brokers. Their professionals work with businesses to assess risk, identify cost-efficient approaches to insurance, and negotiate with carriers to deliver comprehensive options at a competitive price. RBN Insurance Services excels in working with higher-risk, higher-complexity operations where insurance can be hard to place and insights can be differentiating.