Bryant Walker spent two years planning his new career as a small trucking company owner. He dipped into retirement savings for a down payment on a 2017 Volvo semi-truck and to pay for commercial driver’s license classes and required fees.
One thing he didn’t plan for: how hard it would be to get insurance.
One broker offered Walker a commercial vehicle insurance policy with an annual premium of $43,000 — $2,000 more than heavy-duty truckers’ annual median pay. Other brokers asked similar amounts, saying that Walker was considered a high risk because he’s a new driver and new company owner.
It took Walker, 52, five months to find a broker willing to write a policy he could afford.
“When I would tell them I was a new driver they didn’t want to talk to me,” he said. “It was very discouraging.”
In an otherwise ideal time for entrepreneurial-minded individuals to join the gig economy and start a trucking business, lack of affordable insurance is proving to be a major stumbling block.
The overall outlook for the trucking industry is increasingly positive, based on indicators such as higher freight volumes and heavy-duty truck orders. On-demand, cloud-based services from Uber Freight, freight-matching start-ups and established freight brokers make it easier for truckers to find enough consistent work to start a business.
Other key elements are in place. A glut of used big rigs has caused prices to drop 7.9 percent from 2016, making used trucks more affordable even for entry-level owner/operators. The asking price of a used heavy-duty sleeper truck with about 470,000 miles is around $44,000, according Price Digests, a trucking information services company. At the same time, diesel fuel costs have remained steady and relatively cheap.
But insurance policies with annual premiums that cost $6,500 or $7,000 four or five years ago now run anywhere from $12,000 to $14,000, “and a lot of brokers are throwing around $20,000,” said Joe Rajkovacz, director of governmental affairs and communications for the Western States Trucking Association, which helps members find insurance.
In 2016, rates for commercial auto policies jumped 5.4 percent, a sharp contrast to rates for other types of insurance, which fell a cumulative 2.5 percent, according to the Council of Insurance Agents & Brokers.
Eighty-seven percent of respondents to a Q1 2017 CIAB survey reported paying higher premiums the last time they renewed a commercial auto insurance policy.
Why Insurances Premiums Are So High
Getting into the trucking business as an independent owner/operator is more complicated than filling out an application to drive for Uber or Lyft.
For CDL truck drivers to operate under their own authority as a licensed, regulated carrier, they must apply to the Federal Motor Carrier Safety Administration, or FMCSA, for a U.S. Department of Transportation number, which allows them to run a heavy-duty truck across state lines. They also must meet other state and federal requirements.
And they need insurance. Like any other trucking company, FMCSA requires individual owner/operators to carry a minimum of $750,000 to $5 million in liability coverage, depending on the type of cargo they transport. Coverage minimums haven’t changed since 1985. The FMCSA has looked at raising the requirements but dropped plans for a change earlier this month, saying it did not have sufficient information to make a decision.
In addition, owner/operators who work as for-hire interstate haulers also need cargo insurance, typically $100,000 in physical damage coverage. Brokers and shippers may require other coverages types.
Carriers and the brokers sell policies for them at set premiums based on a trucker’s location, rig and cargo hauled. Insurers also look at a driver’s safety record, which is based on their FMCSA Compliance, Safety, Accountability scores. CSA scores take into account safety, collisions and other factors based on roadside inspections, crash reports and data from investigations. Drivers who are less experienced, haul hazardous materials or who have bad CSA scores can expect to pay more.
The biggest cause of higher premiums, however, is U.S. insurers’ reaction to higher-than-expected accident rates and claims involving commercial vehicles, a one-two punch that depleted cash reserves the companies set aside to cover claims, which has hurt profits.
In 2016, U.S. insurers’ commercial auto insurance policies registered their worst performance in 15 years, hitting an underwriting combined ratio of 110.4 percent, according Fitch Ratings, the New York credit rating agency. Translated, that means for every $100 in commercial auto insurance policy premiums collected, U.S. insurers paid out $110.40.
Some of the higher-than-anticipated claims are related to so-called nuclear jury verdicts in court cases involving truck-related collisions and fatalities, including cases that have awarded plaintiffs tens of millions in damages. Insurers are citing an increase in claims and more claims settled in lawsuits for their poor performance, said Fitch Ratings Director Gerry Glombicki.
“It’s cheaper to settle without litigating, but even if (a case) is thrown out, you have attorney’s costs,” Glombicki said.
Some Insurers Are Getting Out of the Business
Some insurance carriers have been burned so badly they’ve stopped writing policies for new entrants, including small trucking companies and individual owner/operators.
American International Group Inc. has curtailed its commercial vehicle business to improve profits, according to a recent Fitch Ratings report. Over the past five years, AIG’s losses have averaged $26 on every $100 collected in policy premiums. It’s the worst performance of the country’s top 15 commercial vehicle insurers, according to the Fitch report.
Higher premiums also reflect the realities of the insurance brokerage business. It’s more lucrative for brokers to write policies for midsize and larger trucking carriers because those carriers require more services that brokers can charge for, said Chris Mitchell, senior vice president of sales for EPIC Insurance Brokers & Consultants, a San Francisco broker that sells policies to WSTA members and other truckers.
“It’s expensive to quote 10 owner/operator policies and then only write one,” Mitchell said.
In recent years, insurers such as Progressive have gained market share by selling policies online to smaller trucking companies that don’t need individualized assistance, he said.
Insurance may be the most significant problem facing drivers thinking of going into business for themselves, but it’s not the only one. Used heavy-duty trucks might not meet air quality requirements in states such as California, Mitchell said.
“You can put a bandage on it, but at some point you’ll have to buy a new truck,” he said.
Not everyone is convinced the industry will benefit from new freight-matching apps that will inspire more drivers to become owner/operators.
Trucking companies pay a huge role in training drivers and operating and maintaining trucks so the equipment is safe, said Noam Frankel, a freight industry veteran and founder of FreightFriend.com, a private online freight exchange.
“If we increase owner/operators who drive without training, maintenance and management given the liability of driving on the road, the cargo value and incredible service demands, you’ll see liability insurance go through the roof,” Frankel said.
From Telecommunications to Trucking
Such issues didn’t deter Walker, who as a child dreamed of one day driving a truck. Instead, he spent 34 years installing telecommunications systems for NEC America, outfitting everything from small offices to hospitals and hotels.
When Walker retired in July 2016, he was ready to make his childhood dream come true. In addition to paying for a truck and CDL classes, he dipped into 401(k) savings to fund incorporating a business so he could eventually hire other drivers. His first employee and inaugural seat mate is a friend who’s been driving eight years.
Getting everything arranged was no small feat, but the worst was finding insurance. Walker started in January and chased multiple dead ends, talking to brokers from Florida to Connecticut. A tip from a friendly dispatcher led him to iTech Insurance Agency in Fontana, Calif., which offered him a policy with a $19,000 annual premium. The policy covers up to $1 million for liability, $100,000 for cargo damage, and $80,000 to cover his truck. Since Walker will be pulling clients’ trailers, his coverage also includes up to $35,000 for trailer interchanges.
Last week, Walker signed up with Uber Freight, which gives him the ability to pick up loads with one click on a mobile app. He was also waiting for his driving partner to take a required drug test. Once the partner passes, the pair plan to fly to Houston, collect Walker’s new Volvo VNL 780 rig, pick up a load he’s been promised and hit the road.
Insurance hassles made Walker wait to take his maiden voyage longer than anticipated. Now, he said: “I’m pretty much set.