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Insurance Premiums May Rise
Wednesday, 01 July 2009 00:00

The long downward trend in insurance rates for fleets may be coming to an end as more insurers push for higher premiums to make up for investment losses.

The days of double-digit annual rate decreases for insurance premiums are almost certainly over, industry experts have said, and motor carriers accustomed in recent years to seeing annual reductions in the cost of their insurance may be in for a shock.

“Now is the time to evaluate your current insurance program and make appropriate changes before rates increase,” said Shawn Young, senior vice president of The Marquis Agency, a unit of NIP Group Inc. in Woodbridge, N.J.

The market shift won’t mean an increase in rates for all fleets, however, because many companies have improved their safety records and the recession has cut the number of miles traveled and reduced payrolls, resulting in fewer crashes and injuries and lower overall risk.

A survey of insurance brokers and underwriters conducted by NIP Group in the fourth quarter of 2008 found the trend of premiums “moving in the direction of modest rate increases.”

“There’s a lot of unrest right now,” said Michael Lawrence, transportation sales manager for Roemer Insurance in Toledo, Ohio. “Insurance companies are testing the waters” to boost premiums, he said.

While signs point up, Lawrence said he doesn’t expect insurance rates to go “through the roof,” partly because many trucking firms are running fewer miles in response to a downturn in demand for freight hauling.

“Reduced mileage is reducing exposure,” Lawrence said.

Because insurance rates often are pegged to estimates of the number of miles traveled, Lawrence said he was able to cancel some policies midterm and rewrite them to reflect lower actual mileage.

The tough job market also is helping carriers to hire and retain more experienced drivers, and insurance experts say that trend is helping to improve safety performance.

“Carriers can be more selective,” said Todd Reiser, vice president of transportation for The Lockton Cos. in Kansas City, Mo. “I would be cautious, though, because there still is a shortage of very qualified drivers.”

Richard Augustyn, chief executive officer of NIP Group, said his company’s survey indicates that insurers are most likely to raise rates the most for small- and medium-sized trucking companies.

The survey indicated a slowdown in rate decreases for a broad range of insurance coverage—from accident liability to cargo and workers’ compensation—but the trend was more pronounced for firms that pay less than $250,000 in annual premiums.

Premiums for larger accounts continue to fall at annual rates of 10% to 20%, Augustyn said. The survey also found that fewer insurers were entering the transportation market.

Experts expect to see a gradual shift from a “soft” market, in which rates fall, to a “hard” market, in which rates rise, because insurers have experienced a reduction in reserves needed to support insurance underwriting.

A.M. Best Co., a rating agency for insurance companies, said total policyholders’ surplus for U.S. property and casualty insurers was expected to decline by 10% to $485.3 billion at year-end 2008 from $538.2 billion in 2007. Final figures for the year were not yet available.

Commercial auto insurance makes up $24.3 billion, or 5.4% of $449.7 billion in total net premiums written by property and casualty insurers in 2008.

Insurers paid out 98.5% of commercial auto net premiums written to cover claims and expenses in 2008, compared with 94.2% of net premiums written in 2007.

In 2009, A.M. Best said it expects underwriting results to worsen, with a combined ratio of 101.5% and income from investments remaining at very low levels.

Nevertheless, A.M. Best analysts said the overall outlook for the U.S. commercial insurance market is “stable” and that rates “will continue to be soft and competitive well into 2009.”

Light & Medium Truck, 7/1/2009