Change was the word for 2008. The election of Barack Obama was a divining moment and change, whether welcomed or not, was on the way. But while the election was expected to be the big story of the year, ultimately the catastrophic economic downturn knocked politics down the chart. The tumultuous change in the economy was not welcome by any. Freight demand has dropped considerably. The credit crisis has affected both shippers and motor carriers. In an industry which is very competitive and operates on a thin profit margin, motor carriers are scrambling to revamp operations to survive the recession. The development of ancillary and value added services to increase profit without substantial cost increase is considered a key element to the success of any motor carrier in the coming year. The desire for corporate efficiency and high productivity, which was a core focus early in the year, is an absolute requirement now as it is not the way to grow, but rather the way to weather the storm.
Bankruptcies in the manufacturing, retail and motor carrier sectors have risen to new levels. The domino effect is apparent as shippers file for bankruptcy protection, leaving motor carriers with large virtually uncollectible receivables which seriously impacts the motor carrier’s bottom line. That, together with their own economic issues, has resulted in the loss of many motor carriers. Over 2,500 carriers have reportedly filed for bankruptcy this year and there are an untold number of carriers who have simply shut their doors as they have no operating capital and lines of credit are reduced or limited. The numbers are expected to continue into the New Year and recovery, while hoped for, may be a long way down the road.
The credit squeeze has tightened up the ability for carriers to buy or lease equipment. Current reports indicate that banks have limited capacity for truck equipment financing due to lack of capital. Equipment manufacturers report a drop in sales as financing becomes more difficult and more motor carriers elect to forgo the purchase of new equipment pending an upswing in the economy. The large number of motor carrier bankruptcies has created a glut in the used equipment market, as there are 127,000 fewer trucks in operation, most of which are now up for sale. Insurers should consider the impact of aging equipment on a motor carrier’s safety and operating standards.
The political battle of 2008 is already a thing of the past. President Obama is the focus of the future as all eyes turn to him for a solution to these difficult times. In what is perhaps considered a return to an earlier time, he has indicated that restoring our nation’s crumbling infrastructure will stimulate economic growth and early indications are that funding, in large amounts, will be made available quickly. While the transportation industry will be happy with better roads and bridges, they will be even happier with the increase in manufacturing and freight which will likely be generated by increased building. Various trucking leaders have met with the DOT transition team and addressed the critical issues facing trucking, including infrastructure changes, hours of service and the size-weight limit of trucks. Rep. Ray LaHood has been tapped as choice for Secretary of Transportation. Mr. LaHood has been on the House Transportation and Infrastructure Committee for many years and is expected to bring significant experience to the table.
Historically the transportation industry has always been a key economic indictor in the stock market. There has always been a direct correlation between total truck miles traveled by the publicly traded motor carriers and economic growth. If motor carriers do well the economy is generally doing well. The downturn in the economy is reflected in the stock prices of major carriers. The Dow Jones Transportation Average, the oldest average in the country, was down 27% at year’s end. On the plus side the Transportation Average fared better than the overall stock averages. The Transportation Average is based upon an analysis of 20 different transportation entities, encompassing all aspects of transportation, including truck, air and rail.
Overall logistics costs are up. In the annual State of Logistics report issued midyear, it was reported that logistics spending hit a record high of $1.4 trillion, a 7% increase over the prior year. Cost management is a key, At this point there is little insight into how these numbers will look in the coming year with the interplay of the new economic factors. Last year’s numbers have little reflection on what is facing the manufacturing and retail markets in the coming year.
In some good news, the transportation industry has begun serious efforts to “go green”. The American Trucking Association has launched the program “Trucks Deliver a Cleaner Tomorrow.” The program has detailed proposals to reduce fuel use and save over 900 million metric tons in carbon emissions over a ten year period. Reducing carbon emissions is also being used to bolster the ongoing argument to permit the use of longer combination vehicles, including double and triple trailers.
While forecasts for the immediate future may be a bit gloomy, if motor carriers can withstand this crunch, the future holds good news. The American Trucking Association, in its ‘U.S. Freight Transportation Forecast to…2018” analyzed current data and anticipated that truck transportation’s total share of revenue will be 83.4%, with primary freight shipments in the U.S. jumping to 19.85 billion tons. At the time of the report total transportation revenue is reportedly expected to increase to $1.33 trillion, with most of the increase in trucks operations.
To the satisfaction of insurers and motor carriers alike, the FBI has indicated that it would complete the process of adding cargo-theft as a separate category to the Uniform Crime Reporting database. Cargo crimes were previously placed in with burglary, larceny, and robbery. This separate categorization will allow law enforcement to properly allocate its resources and will assist the insurance and motor carrier industry by providing better data to evaluate risk. Federal legislation is now in place which increased prison terms for cargo theft convictions to three years for cargo valued under $1,000 and 15 years for cargo valued over $1,000.
The ATA’s American Trucking Trends report indicates that Class 8 trucks traveled 139.3 billion miles in 2006, up from 130.5 billion in 2005. The trucking industry employs 8.9 million people and in 2006 used 53.9 billion gallons of fuel and paid $37.4 billion in taxes.
The American Transport Research Institute released its report on the costs for carrier operations. The ATRI determined that the Total Marginal Cost per mile was 1.73, and the Total Marginal Cost per hour was $83.68. When considering these costs it should be noted that the costs will be higher for specialized carriers, in part because of the special equipment needed, and the lower tractor miles per gallon. The report also reveals that the largest majority of truckers operate less than twenty trucks but medium to large carriers handle the largest portion of freight operations. Truck insurance premium averaged 6 cents per mile, with truck load carriers at the lowest average and specialized carriers 130% higher than the truck load carriers.
The “2008 Update on U.S. Tort Costs Trends”, released by Towers Perrin, indicates that tort costs are on the rise, up 2.1%. That is the largest increase since 2003, and is believed to be caused by the rise in auto accident frequency, the first rise since 1999. The tort system cost $252 billion in 2007, or $835 per person, a $9.00 increase over last year. The Fulbright Litigation Trends Survey supports the expected rise in overall litigation as most large companies anticipate growing litigation. Insurance companies were reported as the main target for new litigation in the past year – two-thirds of insurers faced at least six new lawsuits, including 29% facing more than 50 new actions. Historically litigation increases when there is an economic downturn so the coming year may see increases in all of these numbers.
The American Tort Reform Foundation has released its 2008 report revealing the winners of the judicial hellholes. West Virginia has reclaimed the title of the worst location, followed closely by South Florida, Cook County, Illinois, Atlantic County, New Jersey, Montgomery & Macon County, Alabama and Clark County Nevada. Los Angeles, California has also once again joined the ranks of the top judicial hellholes. The U.S. Tort Liability Index, prepared by Pacific Research Institute claims that Colorado, Texas, Ohio, Georgia, Indiana, Florida and Michigan have the best tort rules, while Pennsylvania, Illinois, Maryland, New York, Vermont and Rhode Island have the worst rules.
For years we have ended this section of the resume with the current status of border operations between the U.S. and Mexico. The border remains closed and the whether new political leadership will change that remains unknown. President Obama had selected Bill Richardson to head the Department of Commerce. He was a big supporter of free trade, however shortly after the new year he declined the position under a possible political cloud. President Obama indicated during his run for office that he would look to renegotiate certain aspects of NAFTA.
Current economic conditions call into question the value of reports on prior year operations as it is anticipated that all relevant numbers which impact motor carriers and overall freight movement will change radically in this declined market. The reports do continue to provide some insight into baselines while changes occur this year. The most recent statistics indicate that cross border freight shipments continued to grow through 2007, with the total value of U.S. freight shipments with Mexico growing 8.4 percent annually. Goods shipped in trade with Canada grew 8.6 percent annually. Over 61 percent of this freight, measured by value, was hauled by trucks. The ATA Trends report discussed above indicates that in 2007, trucks transported 57.8 percent of the value of trade between the United States and Canada, up 3.4 percent from the previous year, and transported 66.2 percent of the value of trade between the United States and Mexico, up 4.8 percent.
The cross border trucking pilot program implemented by the FMCSA was a sore subject this year as snipes were exchanged over efforts by Congress to terminate the program. The FMCSA did keep it going but its overall impact was negligible as motor carriers simply did not elect to participate and undertake all of the requirements necessary to be part of the program. When the most recent numbers on the program were released the FMCSA reported that there were no crashes involving these trucks and less than 1% of the trucks were taken out of service during inspections. The question ultimately is whether these statistics would continue if the border was fully opened to all motor carriers. The DOT advised that the program would be extended for two additional years. The House of Representatives immediately voted again to shut down the program.
Government Activity
New governmental regulations flowed from the FMCSA this year. Many of the regulations were long in coming.
Hours of Service rules continued to be a sore subject over the last year. At year’s end the FMCSA issued its new final rule, supporting the final rule which was placed into effect in 2006, after 2 years as an interim rule. However even the finality of the rule remains in question as core opposition to the increased hours remains and legal attacks continue. There has been some indication that Congress may undertake to legislate the rules. The critical opposition to the rule stems from the increase in maximum driving hours from 10 to 11. Opponents contend that the regulatory agencies have failed to properly analyze the impact of driver fatigue from these extended hours. In one study funded by the FMCSA the first hour after a driver starts working, regardless of the amount of time off, is the hour in which most accidents occur. The report suggests that this may be due to the complex driving situations which occur when the drive begins, as well as traffic conditions and sleep inertia.
In mid-year there was a serious bus accident in New Mexico resulting in a large number of fatalities. It was discovered by the FMCSA that an unsafe carrier had entered the bus industry by simply reforming and obtaining authority under a new name. In a quick response the FMCSA suspended the authorization of any new bus carriers while it evaluated this issue. We have, unfortunately, seen this happen with passenger and general freight motor carriers. This serious accident compelled the FMCSA to undertake new steps to prevent this from happening. Rulemaking has now been put into place which requires new carriers seeking entry into the transportation market to comply with additional rules to insure that they operate safely. These new rules are considered the most stringent since deregulation and are designed to respond to the growing criticism over a perceived reduced concern over the operations on the roadways. The rules, which have been dubbed the “16 deadly sins”, include numerous drug and alcohol rules, CDL requirements, failing to have proper insurance, using disqualified drivers, using vehicles which have been put of out service or not properly inspected. The FMCSA has reached out to CAB to assist them in vetting out these unsafe carriers. With our extensive database and our ability to timely monitor carrier’s safety rating we have been able to provide the FMCSA with added information to shut these unsafe carriers down.
The long awaited chassis rules were released at year’s end. For many years motor carriers have borne the risk of injuries caused by defective intermodal equipment. The new rules will make intermodal equipment providers subject to the Federal Motor Carrier Safety Regulations. No longer will motor carriers bear sole responsibility for defective equipment as the regulations provide for joint responsibility among intermodal equipment providers, motor carriers, and drivers. In the coming years owners will be required to implement regular and systematic inspection, repair, and maintenance programs and will ultimately have to have placard their equipment with their DOT number for recognition.
The FMCSA also implemented rulemaking which requires states to merge the commercial driver’s license (CDL) and the driver’s medical examination certificate into a single electronic record. Once this program is implemented, state and federal agencies will have immediate access to a driver’s medical certificate. FMCSA also has proposed rulemaking to establish a National Registry of Certified Medical Examiners. It would create standards, including a training and testing program, and a National Registry of Medical Examiners who are qualified to conduct examinations of interstate truck and bus drivers in order to insure continuity in examinations.
While the economy is a major issue for all, focus on the transportation of hazardous materials remains high. The FMCSA has decreed that it will now consider whether an accident could have been prevented when reviewing crash data and establishing SafeStat scores. Under current regulations a motor carrier can not be granted a safety permit for transport of hazardous materials when it has a crash rate or driver, vehicle or hazardous material out of service rate in the top 30% of the national average. If a permit is denied because of the crash rate the motor carrier can then petition to establish that a crash was not preventable by the driver and seek a modification of its SafeStat score.
In the post 9-11 world many items were categorized as hazardous. The Pipeline and Hazardous Materials Safety Administration has proposed rulemaking to reclassify items which are not considered serious safety risks. If enacted, the PHMSA would evaluate security threats associated with specific types and quantities of hazardous materials and would reduce the list of materials subject to security plan requirements, thereby reducing costs to the transporting entity.
Other government agencies were also focused on security in the transportation chain. The GOA issued a report indicating that the Customs-Trade Partnership against terrorism program has a number of gaps which leaves open the ability for security breaches in the transport of containerized freight into the U.S. Once things settle down with the economy this is expected to be addressed in Congress this year.
The EPA has issued its final rule requiring heavy truck manufacturers to install onboard diagnostic systems by the year 2010. The systems are required to alert drivers when engine emission systems are malfunctioning. If successful the program will reduce overall diesel emissions by more than 90%.
A bill was introduced in the Senate, the Safe Truck Operations and Preservation Act which, if passed, will require that trucks have a maximum weight of 80,000 pounds and would establish a maximum length of 43 feet for trailers. There is substantial opposition to the bill as another coalition, which includes the ATA, seeks to set weight limits at 97,000 pounds. It is likely that this will be a battleground in the coming year.
Legislation was also introduced to insure that fuel surcharges are passed directly to the company or individual actually paying the fuel costs. The most recent version mandates penalties up to three times the amount of damages, payable to the government, along with treble damages and attorney’s fees for the motor carrier. Transportation brokers have joined together to fight the legislation which they anticipate will, if passed, force them to post profit margins for each load to be hauled.
There has been a backlash over the number of drivers who are unable to speak the English language. Federal regulations require a commercial driver to be able to communicate well enough to address matters with the police. Last year authorities issued 25,230 tickets nationwide for this violation, often taking the driver out of service. The FMCSA has now advised that anyone applying for a CDL must speak English during their road test and vehicle inspection, without using an interpreter. A number of states have enacted legislation requiring that that written tests be taken in English, as a further push to force all drivers to become more proficient in the language.
Household goods carriers remain a focus of scrutiny as the FMCSA undertook investigations into unacceptable operations by some carrier and issued serious fines to those carriers. For the U.S. Government, the Families First program was finally implemented, on a small scope, in November. There are over 500,000 military service members and civilian employees moved each year and the government remains the largest shipper of household goods. Underwriters are reminded that motor carriers authorized to operate under this program have agreed to full replacement value for property lost or damaged and agreed to a stream lined claims process.
Looking forward, the FHWA is testing different methods to calculate border congestion by monitoring the number of trucks crossing into the U.S. The index, once completed, will track volume and advise carriers as to the anticipated time needed to cross the border and complete delivery on time. It is anticipated that if proper information is obtained interested organizations will also be able to ascertain the impact the delays have on the U.S. economy.
The FMCSA has indicated that it will have a proposal for a drug testing database ready for consideration by the new administration. While most truckers recognize the need for such a data base the concerns over privacy issues will make this a contentious rule once it is published.
Motor Carrier Industry
The U.S. Census Bureau released its 2007 Commodity Flow Survey. They found that trucks were used to haul 70.7 percent of the total value of the commodities shipped in 2007, representing $8.4 trillion and 9 billion tons. Of interest is that fact that more than half of all tonnage traveled less than 50 miles. More than $1.5 trillion worth of shipments were sent by parcel delivery (including the U.S. Post Office and courier services). The Commodity Flow Chart, available on the U.S. Census Bureau web site, or by clicking this link, is an excellent resource for insurers as it breaks down the statistics by commodity, distance and mode of transportation and can provide excellent modeling information.
Early in the year fuel costs were one of the most critical issues in the trucking industry as soaring costs began to idle small carriers Diesel costs were at an unprecedented high and the increased fuel costs hit every aspect of manufacturing, further impacting the transport of those products. Operating costs were high, as fuel replaced labor costs as the reported top operating expense for many carriers. However in the later part of the year fuel costs dropped substantially while the economy worsened. Diesel costs dropped 31% following the summer highs. Economic conditions, which was originally the number two concern of motor carriers is likely to have jumped over fuel costs to take the top spot. It is reported that fuel prices will rise again in 2009. The ATRI report on the critical issues on the trucking industry for 2008 lists driver retention, government regulations, hours of service, road congestion, highway funding, environmental issues, tort reform and on-board truck technology as the remaining categories of the top ten concerns for motor carriers.
Theft has always been an issue for motor carriers. In this past year identity theft has become a focal point for carriers as new scams abound. Internet postings for freight, and the relative ease in stealing copies of operating authorities and insurance certificates has resulted in shippers and carriers alike being hoodwinked. We have received many reports of cargo theft where the actual carrier had no knowledge of the transport, as well as many reports of fraudulent freight brokers collecting freight charges and disappearing without payment to the motor carrier. The FMSCA has incurred the ire of many companies as the licensing and insurance website is not secure and can be hacked and changed by unsavory entities looking to steal a carrier or a broker’s identity.
The impact of the decline in the housing market has trickled down to the household goods moving industry. As fewer homes sell, fewer homeowners move. Whether business moves or personal moves, the number of moves has dropped considerably and a number of large motor carriers have reported staff reductions. The only area in the household goods movers industry which has increased are military moves. The deployment of military overseas requires a large numbers of household transfers.
The ATA lost its grant from the Department of Homeland Security, necessitating the shut down of its Highway Watch call center. The trucking security grant was given over to HMS Company, which provides management, technical, security, training and administrative services to government, non-profit and private sector clients.
A mid-year report released by the GAO garnered substantial public outcry and press. The report indicated that perhaps hundreds of thousands of U.S. commercial driver’s license holders also qualify for full federal disability payments, with many of those suffering from severe health problems. The report was newsworthy enough to make its way to virtually all main stream newscasts. The GAO report also indicated that drug and alcohol abuse can increase the risk of truck crashes from two to six fold. The GAO also found that some carriers have no drug testing program at all, drivers undertake common steps to avoid drug testing and that drivers who test positive may continue to drive by changing trucking companies. The GAO report also concluded that the FMCSA conducts limited compliance reviews, approximately 13,0000 annually, leaving the other 687,000 registered carriers unexamined.
The DOT released its mid-year report on truck fatalities. The number of deaths fell to 4,808 last year, a 4.4% drop. This is the lowest level in 15 years. The overall fatality rate fell to 1.37 fatalities per 100 million miles traveled. It is anticipated that numbers will drop further as total miles traveled will be even lower than the .06% drop last year.
Food safety in transport is expected to be one of the issues which will be focused on by the new administration and changes will be important to motor carriers. Food transport safety regulations are currently under the auspices of the U.S. Department of Agriculture, DOT and the U.S. Department of Health and Human Services, creating confusion for motor carriers as they attempt to navigate these many rules. Terrorist concerns are the main reason for consideration of expanded regulations, however, additional regulations may help reduce the $35 billion in food which is lost or damaged in transit, which includes one-third of all perishable commodities transported. This is a critical area for cargo underwriters as losses for consumables continue to rise simply because the product is not transported in accordance with government regulations and good manufacturing practices.
One of the few pluses to the economic crises is the reduction in driver turnover. With unemployment at an all time high and motor carriers reducing capacity and equipment, drivers seem to be staying put in larger numbers than in earlier years. Unfortunately after years of increased payrolls, reports indicate that trucking companies have reduced payrolls this year, hiring fewer drivers. The recession has led to job cuts at many companies, creating a larger pool of applicants. While less than truck load turnover rates have always been lower than truck load turnover rates, due to the greater availability of “at home” time, even truck load turnover rates have dropped below 100%. The concern over keeping jobs is reflected in the more recent union re-negotiations, including some proposed wage cuts in exchange for ownership interest.
Overall the trucking industry faces challenges. However this is an industry which has responded well over the years when put to the test. Yes, there will be losses as more carriers close due to lack of capital. Yes, there will be increased costs and expenses as the industry becomes more environmentally friendly. However those motor carriers that remain will hopefully grow stronger and more productive. This is not an industry which will go gently into the night. It is a needed and vital part of our economic recovery and is, in many cases, the backbone of our country. It will weather this storm.
For insurers, it is crucial to underwriting to consider the financial and safety of a motor carrier. It is anticipated that some carriers will simply disappear overnight, while others will operate on a thin shoestring, something long known to result in increased loss and inattention to safety. In addition, carriers will look to change their own operation and provided value added services, or expand into various logistics operations. These changes will affect the risk that you are underwriting and it is critical to “Know Your Insured” so that both parties to the insurance contract understand what risk is being undertaken.
Insurance Underwriting
Looking back over news articles this past year it is readily apparent that the insurance industry is not a quiet, in the background, business any longer. Starting with federal trials for various insurance violations, continuing with the downfall of Governor Eliot Spitzer, to the AIG bailout, to the possibility of greater regulation by the incoming President, insurers were routinely “in the news”. On the plus side property/casualty insurers seem to have been less affected by the sub-prime mortgage issues as they tended not to have much exposure in that area. The assets of most property casualty insurers appear to be better protected, although they too will be impacted by the overall economic downturn.
Apparently there is hope for the future. An end of the year report released by Advisen Ltd. reports that the market will start to harden and insurance rates will increase for commercial insurance beginning in the fourth quarter of 2009 or first quarter of 2010.
Earlier in the year saw the introduction of legislation seeking a federal insurance department. The Insurance Information Act of 2008 seeks an Office of Insurance Information within the Department of the Treasury which would collect and analyze data on insurance and ensure that state insurance laws remain consistent with federal policies. The proposed legislation did make it out of the sub-committee but appears to have languished since that time. It is expected that with the financial industry crisis additional legislation providing for oversight of all financial industries, including insurance, will be quickly forthcoming under the new Administration.
Even insurers are recognizing the “greening” of America. Internally efforts are being made to go paperless and reduce carbon emissions. In addition to their own efforts to “go green”, many insurers have released policies in inland marine, commercial auto and a range of other operations which provide green coverage. These policies are designed to protect the expenses incurred by companies which go green and suffer a loss, or simply to rebuild green after a loss event.
After a few years of excellent combined loss numbers, the insurance industry has suffered some serious setbacks this year. ISO reports that net written premiums dropped $1.4 billion, or 0.4 percent, to $336 billion through nine-months 2008 from $337.4 billion through nine-months 2007. Net earned premiums rose $1.2 billion, or 0.4 percent, to $330.4 billion for the first nine months of 2008 from $329.2 billion for the first nine months of 2007. These are the weakest numbers in recent years. The market has clearly softened and rates, at this point, are still dropping According to the Council of Insurance Agents and Brokers rates declined approximately 11% and underwriters report that requests for reductions in premium are routine. The combined loss ratio, which last year was at 93.8 at this time, is 105.6 percent, the worst since the horrific results following the 9/11 attack. ISO also reports that net loss and loss adjustment expenses (after reinsurance recoveries) jumped $39.7 billion, or 18.1 percent, to $258.8 billion. Excluding estimated net catastrophe losses, ISO estimates that net loss and loss adjustment expenses increased $23.1 billion, or 10.8 percent, to $237.2 billion for nine-months 2008.
Guy Carpenter released its end of the year report on catastrophe losses for 2008. Insured catastrophe losses totaled $38 billion for 2008, a 7% increase over 2007 and one of the costliest to date. The report cites hurricanes Ike and Gustav as the primary causes of insured losses, with combined losses of $12.8 billion. Fires, floods and manmade catastrophes also contributed to the high numbers.
Underwriting motor carriers, in any capacity, is a big business. It remains a market which requires sophisticated underwriting and a unique understanding of the transportation industry and all of its intricacies. Those underwriters who have that knowledge will survive a soft market and will, we believe, ultimately increase their book of business. Retaining staff experienced in this field, and training new staff in the complexities of this business is critical for long term growth. We urge you to utilize the unique knowledge available through CAB to make your book of business the best it can be.
Central Analysis Bureau
As CAB celebrates its 70th anniversary, we look back with amazement at how the company has evolved. As a small operation, with all the work done almost exclusively by Kal Schindel and Hy Cooper, CAB began to gather data to provide detailed financial analysis to underwriters in this industry. Seventy years later our core remains intact, but we have now grown to fill an even greater need in the industry. CAB is the industry source for providing critical financial and safety information on the motor carrier industry. No longer simply an underwriting tool, our database of information, and our unique analysis, provides valuable support for all departments within an insurance company, including actuaries, underwriting, loss prevention and claims.
The number of insurance companies who recognize the value to our enhanced services is reflected in the growing number of Premium Subscribers. Many new companies have joined CAB and current subscribers have upgraded to the Premium level. We continue to actively solicit feedback from the different departments within these subscriber insurance companies, including underwriting, claims, loss control, SIU and management while we continue to fine tune and enhance our array of tools to better reflect, focus and highlight the information that is most relevant to the insurance industry. Whereas the initial launch of our “Know Your Insureds” program nearly four years ago focused on a defined set of management and end-user tools, over the past year we have expanded our development to include a set of fully customizable reports thereby giving our clients full control over the information they wish to see. By combining our three primary programs – the Insurance Filing Monitoring Program, Safety Monitoring Program and Financial Analysis Program into a single package, insurance companies can rest assured that they have access to the most comprehensive data available about the motor carriers they currently insure or are considering for insurance.
Given the highly competitive, fast paced nature of the motor carrier insurance industry, underwriters are afforded a minimal amount of time to evaluate the risk factors associated with a particular account. Since underwriting is inherently an educated analysis of risk based on available information, the accuracy and completeness of the reviewed information will have a direct impact on the accuracy and completeness of the risk assessment. Unfortunately, utilization of the various government websites can be time consuming and confusing as underwriters discover inaccuracies, misleading or conflicting information in those databases. CAB’s own proprietary system was designed to merge, isolate and identify anomalies in, and create a means of cross referencing and cross checking this data. Issues that might otherwise have been overlooked are now caught by CAB’s systems and highlighted for review. We have created a presentation which creates an easy to read and navigate report, whether you are an underwriter, a claims adjuster, an actuary or an investigator.
Recognizing the need for education, CAB provides full service along with its products. Our trained analysts are available to help users understand the reports and ratings provided by CAB. Web based demonstrations are available upon request and can be performed on a one-to-one basis, or through simultaneous broadcast to 15 different locations. We would also be pleased to provide a demonstration of our products to any interested party not currently subscribed to our services.
CAB will also once again be present at the seminar jointly hosted with the law firm of Schindel, Farman, Lipsius, Gardner & Rabinovich, LLP. We will provide our unique insight and understanding of available information including frequently underutilized yet accessible tools which can enable underwriters to more effectively underwrite motor carriers and vastly improve their results, as well as provide advanced information for more in depth investigation during the claim process.
Many insurance companies are already reaping the benefits of subscribing to all of our products. For those of you not familiar with all of our products, space only allows a short introduction of each product below so we encourage you to contract Laib Roberts at 212-244-6575 x227 or by email for more in-depth information.
Safety Monitoring Program: Beginning with the initial application, throughout the term of the policy, and at the point of the policy renewal, CAB’s Safety Monitoring Program will help you research and track all potential and current risks. Information collected by the USDOT at weigh stations and roadside inspections, accident reports, audits and other government operations are collected and assembled by CAB’s systems. Upon demand, whether to assist an underwriter with an initial application or renewal, or for claims and loss control researching an account, our Submission Report™ is available. This report, which can be viewed by premium subscribers directly from our website, is unparalleled in the information displayed, and includes financial and safety ratings, operating authority, current and historical insurance information, filing requirements, detailed out-of-service statistics, reported and derived power units, trailers, states where inspections have taken place, as well as a list of individual VIN numbers of vehicles inspected and all associated violations. Alerts are prominently displayed on the front of the report to warn the user of any issues of concern. For even greater analysis, the reports are equipped with controls which determine how the information is displayed allowing the user to hide and display information as needed. With this report in hand, there is no longer a need to spent precious time reviewing potentially irrelevant data on the various government websites. Given that the industry is constantly changing, we continue to add new features to the reports based on feedback we receive. Because any successful operation should not end with the issuing of a policy, CAB will continue to monitor the insured with our Baseline Report followed by our weekly management Update Reports, which highlight any significant changes in a carrier’s safety performance. In addition, CAB provides monthly custom monitoring reports which can track many different issues related to their insureds during the policy terms such as Mexican border inspections, alcohol, drug, or any violation specified.
Insurance Filing Monitoring Program: Insurers are routinely faced with unanticipated exposures because U.S. Department of Transportation filings have not been cancelled, filings are made with greater limits than required or filings are made for carriers that did not even require filings. Improper filings are a ticking time bomb for any insurer. Every day that any incorrect filing remains in place, you increase your risk and potentially affect your bottom line. CAB is the only company to offer the management tools that would allow for a company to eliminate problematic filings, as well as real-time tracking of all new filings the month they are issued. On a monthly basis, we scan through all the outstanding filings that an insurance company has registered with the FMCSA. Each individual filings is analyzed to determine whether or not it falls under any of the following categories: Filings with effective dates 5 years old or older; filings on behalf of carriers whose authority has either been revoked or never granted; filings utilizing a form that results in an effective filings with no dollar limit; filings for amounts in excess of the FMCSA required limit; unnecessary cargo filings on behalf of contract carriers; filings for brokers (a broker does not require a filing); filings on behalf of Mexican carriers (filings not required for Mexican carriers). We then send subscribers a report which lists all of these potentially problematic filings, and a spreadsheet with all outstanding filings for the subscriber’s insurance companies. This report also has a special section dedicated to a “real time” analysis of all new filings, allowing an insurance company to fix errors quickly and to trace how these mistakes occurred. Since an insurance company’s liability under a filing can range from $10,000 per accident for a cargo filing to as much as $5,000,000 for a BIPD filing, avoiding even one payout from an unnecessary filing or limit will pay for the cost of this program for many years.
New Programs Available: The backbone to CAB’s services is its massive data warehouse which contains not only all current information related to the safety, insurance and financial standings of current motor carriers, but also contains the motor carriers historical data as well. As part of our mission to help the industry “Know Your Insureds”, we continue to look for ways to utilize this data to benefit the industry. Subscribers to our Premium service are offered the opportunity to tap into this data for the benefit of predictive modeling or any other analysis. Our highly trained analysts are able to execute complex queries and joins against the data for the benefit of our subscribers to allow our subscribers to benefit from our experience and understanding of the data. In our attempt to further expand the list of end-user tools offered to our subscribers, we are currently developing a website, which is currently operating as a fully functional beta site, whereby subscribers are able to deep search the database for complete or partial VIN or license numbers with various filter options. Preliminary feedback for users of this site has been extremely positive with all users in all departments report success in gathering additional information from this simple search, including use by SIU tracking stolen vehicles, adjusters seeking to determine whether a vehicle is a “replacement vehicle”, as well as underwriters viewing a complete safety and operating authority history of a given unit. Ultimately, this site will be completely merged with our Submission Report™ to make it quicker and easier to perform the ultimate analysis of the data.
The Financial Analysis service: The original and still essential way in which CAB has helped underwriters to know their insureds. For 70 years CAB has been performing financial analysis and providing ratings on motor carriers. Our analysis is designed specifically for motor carriers and the concerns of insurance companies. No other source can provide this type of specific and targeted analysis. In addition to the direct financial responsibility insurance companies assume under their regulatory filings, financial condition has been shown to be directly correlated with safety performance. The motor carrier industry continues to be volatile, with the FMCSA issuing over 50,000 new docket numbers each year and a similar number of motor carriers ceasing to exist. Subscribers can submit financials to be rated, or use our website to look up ratings and information already in CAB’s database. With over 2600 carriers filing bankruptcy in 2008, financial underwriting is critical.
In 2008 the motor carrier industry was buffeted by soaring fuel prices in the first half of the year and collapsing economic activity in the second half. 2009 is sure to bring more such challenges. With over 2600 carriers filing bankruptcy in 2008, financial underwriting is critical. It is important to closely monitor the financial condition of the motor carriers you write of quote. With the economic environment changing rapidly, now more than ever an analysis of current financial information is essential. CAB is there to analyze any additional financial information you may have, along with our own generated information. Whether you are an Automatic or Premium subscriber there is no additional fee above the normal change for your subscriber category to have us analyze any information you submit to us. The breakdown of rating included with this resumé indicates that the percentage of carriers rated SATISFACTORY has declined substantially while there has been a large increase in the percentage rated UNSATISFACTORY.
We continue to be gratified by all the positive comments we receive about our monthly e-mail newsletter, “Bits & Pieces“. We all get way too many e-mails in our inbox but this is one that we have been told many await every month and find to be a “must read”. This newsletter, which is sent free of charge to all subscribers, keeps you abreast of the news of the month in transportation and insurance, provides a heads-up on regulatory activities and provides information on the latest court battles over issues which affect your exposure. As the government issues or changes rules and as the various courts of the land opine this newsletter gives underwriters the information to keep policies up to date. Over the last year subscribers have begun submitting information they want the industry to be aware of. We invite you all to submit any news or cases you may come across which you believe would be of interest. You can submit that information to Jean Gardner. If you do not currently receive this newsletter, but would like to, please register for free on our site or e-mail Mark Schweber.
In 2009 we will continue to seek out new information to help underwriters and claims to know their insured and work to provide this information in the most effective manner possible. We will also continue to solicit feedback and to incorporate that feedback into our products.
The entire staff of CAB wishes you the best for the coming year. Please do not hesitate to contact us with any questions regarding specific motor carriers, the industry in general, regulatory issues or coverage questions. There is always someone here to help you.
