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What Insurers Want – Knowing Makes All the Difference

BRAMPTON, Ont. - Knowledge is a trucker's best defense against rising insurance costs.

BRAMPTON, Ont. – Knowledge is a trucker’s best defense against rising insurance costs.

By understanding how trucking insurance rates are derived and how your company is viewed by insurers you will be better able to manage your insurance expenses.

This is what Mark Ram, president and CEO of Markel Insurance Company of Canada, told an audience of 70 at the Holiday Inn Select in Brampton, Ont. on a recent stop during his cross-country insurance pricing presentation tour.

Trucking insurance prices have increased by 65 per cent since 2000, after what Ram referred to as an “enormous fire sale” during the 1990s.

“We see price wars all the time but not often does one last a decade,” he said. “Only recently have rates returned to 1992 levels but now insurer costs have skyrocketed.”

Prices fell during the ’90s, but the cost of insurance claims grew. U.S. claims have spun out of control, said Ram. A trucking accident in the U.S. today could easily cost three times more than the same accident would have in 1997.

Between 1993 and 1997, only four per cent of verdicts in the U.S. courts exceeded $1 million, but that number has since increased to 12 per cent.

Canadian trucking companies have doubled their exposure to the U.S. in the past 15 years by carrying more loads more often across the border, and the future doesn’t look any brighter.

“It’s one big cash grab in the U.S.,” said Ram. “That’s how U.S. lawyers see truckers rolling down the highway. There are outfits in the U.S. that specialize in suing trucking companies because many of them work on a contingency fee basis where they can keep 30 to 40 per cent of the final settlement.”

Not only have U.S. claims costs increased but other charges are increasing too, such as health care costs, the cost to repair tractor-trailer equipment, and government levies – not to mention the insurance companies’ insurance rates.

“No one company is big enough to take on huge losses by themselves, so we buy insurance that spreads out the risk. But the reinsurance business is a global industry, so large international losses are passed on to all buyers even if they are not involved in the loss,” said Ram.

For example, the loss suffered by 9/11 in the U.S. in 2001 amounted to US$56 billion, and even though Markel didn’t even suffer $1 in losses because of it, the company will still get hit because of its reinsurance policy, said Ram.

Reinsurers raised their rates to trucking insurers by as much as 400 per cent which is a bigger increase than trucking insurance rates, he pointed out.

“I’m not asking you to cry for your insurance company, but I do want you to understand where we are coming from,” said Ram.

Understanding how insurance companies make their money can help a trucking company make an informed buying decision.

An insurance company’s operating ratio is the percentage paid out for every premium dollar. So a company is losing money if the operating ratio is above 100 per cent, said Ram. But trucking has been noted as one of the worst performing sectors in insurance.

A traditional myth in the trucking community is that insurers have mismanaged investment portfolios and have had to raise premiums as a result, but in actual fact, said Ram, insurers have outperformed the market while investment returns have fallen for everyone.

Trucking companies’ premiums pay for claims for accidents and losses, broker commissions, government levies and overhead, Ram said.

“It hasn’t been a lot of fun to be a trucking insurer over the last decade,” said Ram. “I don’t think the companies who have left the business have taken off because they are tired of making too much money.”

Over the last 10 years, many companies have tried to make it in trucking insurance, but have all followed a similar pattern that led them to a 200 per cent operating ratio and eventual bankruptcy, said Ram.

These companies were attracted to long haul trucking because of the large premiums, he said, but without a solid understanding of trucking they would underestimate claims.

“Fifty-one per cent of bankrupt trucking insurers went under because of underestimating claims costs,” said Ram. “So knowledge is power and trucking companies need to understand their insurance in order to predict what could happen to them, the same way these insurers needed to understand trucking.”

A carrier’s insurance rate is determined more by exposure rate than it is by losses, Ram said.

“A common myth among trucking companies is that your rate is all about your past losses – it’s not. The major determinant of your insurance rate is your exposure to risk – what and where you haul,” he said.

An accident involving a fatality that occurs in Saskatchewan would cost upwards of $150,000 but if that same accident occurred in northern New York, it would cost $10 million, said Ram.

How a trucking company is run can also affect insurance rates, and one company can have a huge competitive advantage, or disadvantage, over another, Ram said.

“The difference between a well-run carrier and a poorly run carrier, both with the same exposure rates, could be as much as 50 per cent,” he said.

So although the majority of your rate is dependent on exposure, a company with excellent safety practices, strong driver selection, comprehensive training programs and a good loss record will likely see that exposure rate adjusted down, according to Ram.

There are some things a carrier can do to help manage the price of insurance, he said.

Reporting accidents directly and immediately to your insurer is key, Ram said.

By waiting only two weeks after an incident, there could be an 18 per cent increase in claims cost, which goes on your record and is bound to work out to higher insurance prices.

Maintaining effective safety programs including properly documented driver records, a detailed hiring process, and ongoing training programs, is also important, Ram said.

“Anything you can do to better manage safety in your company is going to affect your claims and will work to your advantage,” he said.

For example, United Postal Service decided to implement a policy whereby its delivery trucks would only make right hand turns so there would be less risk for the driver and ultimately insurance costs. Limiting driver turnover can essentially result in lower insurance costs because a company with higher turnover historically has more accidents, said Ram.

Talking to your insurer regularly establishes a relationship, builds confidence and creates dialogue, he said, and by doing this you can learn about things such as recommended routes, high-cost jurisdictions and target cargo – which can all help to manage costs.

“Work with your insurance company and let them know what you’re doing in terms of safety practices, hiring or any type of procedure that would set the insurer’s mind at ease a little,” said Ram. “When we see things like rapid expansion and acquisitions, hazardous material hauling, high driver turnover, new routes or rising accident frequency in a carrier, we raise the red flags, but if you talk to us and provide explanations sometimes those worries can be eliminated.”

For more information about trucking insurance, contact Markel at 1 (888) MARKEL1 or visit

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