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HUB International 2021 Outlook

Transportation Industry

 

Transforming Uncertainty into Opportunity

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Disruption Steers Fleet Operators into 2021

Grappling with the pandemic and long-standing driver shortage and safety issues, fleet operators will increasingly turn to technology to manage these forces and improve profitability.

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 CSA safety scores and nuclear verdicts — all of which contribute to runaway insurance costs. And yet, the coronavirus pandemic has disrupted transportation in every way, shifting assets and supply chains, altering routes, impacting regulations and advancing the industry’s need for comprehensive technology solutions.

“When it comes to securing excess policies, the name of the game will be higher costs and lower limits.”

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, nuclear verdicts and catastrophic, or CAT claims. The result is 5% to 15% rate increases in commercial auto coverage in 2021, and that will be on top of the 10 to 20% increases that we have already seen over the last few years. 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 most motor carriers have already seen significant rate increases in their excess policies in the last couple of years.

Together, these forces have changed the way transportation organizations determine profitability. With technology now increasingly available to more fleets, the cost of risk per mile will be the best yardstick for fleet operators moving forward.

Here are HUB’s key takeaways for every organization that maintains a fleet:

“When commercial and retail docks closed, the demand shifted directly to consumers’ homes.”

“New state and federal regulations in light of the pandemic will continue to impact the industry.”

1. COVID-19 disruption brings last mile delivery to the forefront.

The COVID-19 pandemic brought B2B businesses closer to the end user. When commercial and retail docks closed, the demand shifted directly to consumers’ homes. Shifting of fleet assets became more important. Big rigs were temporarily sidelined in favor of lighter trucks 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 intrastate 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 state 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. FMCSA Hours of Service regulations have been updated to provide additional flexibility for drivers. These changes include expanding the driving window during adverse conditions, changes to the short haul allowance and 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.

As the pandemic continues, insurance brokers will work with the underwriters to re-evaluate a fleet operator’s risk and right-size coverage for each scenario and fleet mix.

“Hiring experienced drivers, keeping them trained and leveraging technology to manage their risk is the formula that will keep fleet carriers in the clear.”

2. 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. 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 the insurance company on your behalf is critical. In situations where CAT claims affect the transportation industry, advocacy becomes even more critical.

“An increased reliance on technology in 2021 will help transportation businesses monitor drivers, track and onboard them better and with more direction and purpose, extending beyond FMCSA rules.”

3. Investing in tech will propel your fleet ahead of the curve.

Beyond ELD rules, 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 are key when leveraging data. For example, is there an intersection that experiences more accidents than others? If so, change routes, or train drivers for the added exposure.

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, extending beyond FMCSA rules.

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.

“More fleet operators are considering driver benefits and wellness initiatives to stimulate employment.”

4. The severe driver shortage continues to drive industry change.

With an aging driver population -- a quarter of drivers are 55 years or older-- industry leaders are advocating for Congress to reduce the legal age of drivers and open the profession to those 18 to 20 years of age.

More fleet operators are considering driver benefits and wellness initiatives to stimulate employment. Voluntary and group benefits are increasingly being added to attract and retain quality drivers. On-the-road benefits, including having enough places for drivers to park, rest and comply with hours of service laws, will continue to be critically important.

Adding to labor considerations are the changes under the United States-Mexico-Canada Agreement (USMCA), or the new NAFTA, where drivers from Mexico with B1 visas for short-term business travel, are permitted to move freight from Mexico into the U.S. and then haul another load back across the border. This has led to the growth of many motor carriers along the border and the development of more truck lines created and situated on the U.S./Mexico border, specifically in Texas. Without a U.S. commercial driver’s license (CDL), insurance carriers traditionally refused to insure B1 drivers. We anticipate this will change in 2021, as insurance carriers will consider including it in their policies. We expect this action to stimulate economic growth and increase freight moving across the U.S./Mexico border.

While insurance rates are 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

While insurance rates are 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.

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 CSA scores and resolve long-standing challenges.

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