The forces that will drive the transportation industry into 2021 are both total disruption and more of the same old — simultaneously.
The same legacy issues persist— a significant shortage of experienced drivers, poor safety scores and increasing frequency of nuclear verdicts (settlements exceeding $10M for a single accident) across the border, all of which contribute to runaway insurance costs.
“When it comes to securing excess policies, the name of the game will be higher costs and lower limits, with increases estimated at 20% or higher.”
And yet, the coronavirus pandemic has disrupted transportation in every way, shifting fleet assets and in some cases supply chains, altering routes, impacting regulations and advancing the industry’s need for comprehensive technology solutions.
Ironically, the themes that will drive the transportation industry into 2021 are both total disruption and more of the same old — simultaneously.
Underscoring it all are across-the-board rate increases in both commercial auto and excess coverage lines, driven by a dramatic rise in the average cost of smaller claims, American nuclear verdicts and catastrophic (CAT) claims. The result is 5% to 15% rate increases in commercial auto coverage in 2021. When it comes to securing excess policies, the name of the game will be higher costs and lower limits, with increases estimated at 20% or higher.
Together, these forces have changed the way transportation organizations determine profitability. With technology now increasingly available to more fleets, the cost of risk per kilometre will be the best measure for fleet operators moving forward.
Here are HUB’s key takeaways for every organization that maintains a fleet heading into 2021. :
“When commercial and retail docks closed, the demand shifted directly to consumers’ homes.”
“New provincial and federal regulations in light of the pandemic will continue to impact the industry.”
1. Industry disruption alters supply chains and brings last-mile delivery to the forefront.
The COVID-19 pandemic brought B2B businesses closer to the external customer. When commercial and retail docks closed, the demand shifted directly to consumers’ homes. Fleet assets had to shift too. Big rigs were temporarily sidelined in favour of lighter trucks for legal accessibility and B2C methodology took hold. Because last mile-delivery is heavily weighted with independent contractors, new risks and regulatory issues emerged, including transportation-related licensing, permitting and interprovincial protocols. Insurance policies that once covered the B2B transfer of goods over predictable highways to large docks well versed in loading and unloading were challenged to cover last-mile home deliveries as well – a risk some weren’t up for. As the pandemic continues, brokers will continue to work with the underwriters to re-evaluate a fleet operator’s risk and right-size coverage for each scenario and fleet mix.
New provincial and federal regulations in light of the pandemic will continue to impact the industry into 2021, especially in the wake of a significant customer shift. Although there are no changes for Canadian hours of service for commercial heavy vehicles, across the border, FMCSA Hours of Service regulations have been updated to provide additional flexibility for drivers. The driving window during adverse conditions has been expanded and the short haul allowance as well as modifications to the sleeper berth exception.
Because of the rate at which the transportation industry is evolving, it will also be advantageous for fleet carriers to review and improve negotiations with shippers in 2021. This will include better and heightened contract review and further protection against accepting unnecessary liabilities.
Continue to work with the underwriters to re-evaluate a fleet operator’s risk and right-size coverage for each scenario and fleet mix.
“Testing of autonomous vehicles continues to ensure efficiencies and public safety are at the forefront.”
2. The driver shortage persists – as does the movement toward green vehicles.
COVID-related concerns did force some drivers into early retirement or local work, but this actually created additional opportunities in the industry. As a side effect of the Canadian government securing a less protective stance in agriculture, there was also increased freight movement north. Political agendas may further hamper the oil states with the green movement.
On the other hand, experts anticipate further traction on natural gas commercial vehicles as they continue to prove their efficiency in the cold climate, while testing of autonomous vehicles continues to ensure efficiencies and public safety are at the forefront.
“An increased reliance on technology in 2021 will help transportation businesses monitor drivers, track and onboard them better and with more direction and purpose.”
3. Investing in tech will propel your fleet ahead of the curve
Beyond ELD rules, which won’t be formally required in Canada until mid-2021, more and more carriers are turning to — and underwriters are requiring —in-cab technology. When data is collected and used appropriately, it can help drive operational efficiencies across your fleet by optimizing routes, reducing accidents, digitizing training and onboarding and providing more targeted support to drivers. Trending accident statistics is key to leveraging data. For example, is there an intersection that experiences more accidents than others? If so, change routes.
Technology that aggregates data, individual risk management programs, claims tracking and service providers in a single dashboard with the goal of improving overall management and compliance and understanding a fleet’s cost per mile is the ultimate goal. An increased reliance on technology in 2021 will help transportation businesses monitor drivers, track and onboard them better and with more direction and purpose.
Using more technology also means increased cyber risk. Any business that has a fleet and mines data to optimize operations will want to ramp up their cyber security and risk transfer efforts. Make sure your current cyber policy covers your fleet for any and all use of in-cab technology, and your business’ comprehensive technology use.
“Hiring experienced drivers, keeping them trained and leveraging technology to manage their risk is the formula that will keep fleet carriers in the clear.”
4. Proven risk management protocols will drive policy costs at renewal.
New industry developments move the needle of what’s possible, but they are no more critical than maintaining the same proven risk management practices that keep your fleet’s safety scores where they need to be. The latter, after all, is the way to reduce rising risk, keep coverage costs at bay and, most importantly, safeguard drivers. Safety scores historically rest on the individual risk characteristics of each fleet and their loss experience. This begins with proper hiring and onboarding, better vetting and monitoring of drivers, and proactive training, including new prevention on contamination risks; and today, this also includes health, wellness and performance initiatives for drivers.
As the driver shortage continues into 2021, the demand for truckers only increases and delivery models shift, thanks to the pandemic. Optimal onboarding processes will be critical. Hiring experienced drivers, keeping them trained and leveraging technology to manage their risk is the formula that will keep fleet carriers in the clear. These defensible solutions will help reduce the recent rise in the average cost of smaller claims and nuclear verdicts as well.
Claims advocacy is another important aspect of risk management, and necessary to control costs and reduce the potential for nuclear verdicts. For fleet carriers with high losses, employing your HUB broker and claims department to appeal to your underwriter on your behalf is critical. In situations where CAT claims affect the transportation industry, advocacy becomes even more critical.
With insurance rates rising, regulations increasing and the pandemic disruption significantly altering the fleet distribution model for many operators, technology may just be the key to coordinating it all under a single umbrella.
2021 Growth and Beyond
There’s no better year than 2021 to increase investment in technology, as some fleet carriers plan to make history and further disrupt the industry by rolling out a fleet of autonomous trucks in the second half of the year — a move that will carry its own significant technology demands.
Industry disruption isn’t likely to end anytime soon. Instead, fleet operators are challenged with embracing the disruption – all while making a case for improving risk management to improve safety scores and resolve long-standing challenges.
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