Soaring Insurance Rates Stymie New Independent Truckers

June 06, 2017 by Michelle Rafter, @MichelleRafter

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.

Bryant Walker Headshot

Bryant Walker

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.

used truck values chart

(Source: Price Digests)

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.

Top 15 Writers’ Commercial Auto Combined Ratios chart

(Source: Fitch Ratings)

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

Bryant Walker's 2017 Volvo VNL 780 side

Bryant Walker’s 2017 Volvo VNL 780. (Photo: Bryant Walker)

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.

Read Next: Uber Jumps into Trucking, Launches Uber Freight

9 Responses

  1. Pam

    I own a small trucking company. Was insured through Progressive last year. I received my renewal from Progressive and my annual premium doubled. Last years premiums were already high at $23K per year. The new premium was $46K per year. The insurance cost were greater than the payments on two new 2016 Peterbilt trucks.

    • Michelle Rafter

      Pam: Does the $46K premium cover 2 trucks, or more than two? Did the company give an explanation for the increase?
      Michelle Rafter

      • Pam

        Two trucks. The only explanation given was that there was an increase in premiums across the board in Commercial trucking coverage.

  2. Tim

    I got out of trucking in 2002 and back in 2010. My liability isn’t bad at $7500 per year, but the comp at $5000 on top of that is the killer. I started out high risk with Progressive, and paid my dues. Now with Great West, I have leveled out at long as I don’t add any new epuipment. Progressive rates follow their namesake, the longer your in business, the closer you are to your next bad accident! Thus the big rate increases.

    • Michelle Rafter

      Tim: In reporting this, several sources mentioned Great West as a generally lower-cost option to Progressive, and your experience appears to bear that out. Thanks for sharing.

  3. Chris Thomas

    Good luck to him, but he’s fighting an uphill battle with all of that overhead! I don’t recommend many people going out to full blown independent without massive resources and knowledge of the trucking industry. I’m happy being leased to a smaller company myself, reduces risk and I still make a great living. Finding good partners is key to success!

  4. Trent Hanson


    Independent agent out of Corvallis here. I enjoyed your article, and it is spot on. Hard to stomach the premiums, and each insurance carrier has a different explanation or theory for the increase. We are trying to stay on top of it all. The trucking industry keeps our economy moving.

  5. brad williams

    Very nice article!!! I just got my authority 3/8/2018. $30,000 policy. Progressive. Ive been running now for 3 months. I want to add a truck and trailer to my fleet. I have a driver lined up. $14000 increase on policy. I am hoping that the first year is REALLY JUST paying dues. We will see. I hear that it is expensive here in Florida. I was going to see if it would be cheaper if I set up my business in Tennessee. Not sure if it is worth the effort. I will stick it out for 9 more months and if cost is not cheaper I will consider the move to a cheaper state. I am working for Progressive. It hardly seems legal. They were not even wearing a mask or gloves.


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