April 1988 The Roemer Report

The Real "Cost" of Trucking Insurance

Trucking insurance has taken a hefty bite out of the operational costs of most trucking outfits in recent years. How do you manage this so that your company minimizes the cost of your insurance and maximizes your coverage? The logical answer for many outfits would simply be to shop for the best deal every year, selecting the provider with the lowest price. But. the reality is that this yearly low bid strategy will probably produce the highest "real cost" for your company during a 3-5 year period. This apparent paradox is rooted in the highly cyclical nature of the insurance markets and the underwriting practices of the comparative handful of insurance companies who provide the lion's share of trucking insurance. What follows is not intended as a commercial for Roemer Insurance. Rather, it is a straightforward look behind the highly specialized world of trucking insurance...the place where the real cost and availability of your insurance is determined.

WHY CHEAPER ISN'T BETTER: Consider these two realities: (1) The insurance market is notoriously cyclical. It tracks the costs of funds, inflation levels, and the performance of the economy. None of these elements is noteworthy for its stability. We've been in the trucking insurance field for 50 years. With remarkable regularity the market has bounced back and forth from "hard" to "soft" markets. We've learned that it is almost fruitless to try to call market turns. Rather, planning for the inherently cyclical nature of this insurance market is the first rule of survival...both for those who buy and sell trucking insurance. (2) Trucking insurance is a highly specialized field with extraordinary potential exposure levels. In a "soft" market coverage is often made available by new providers. But, at the first hint of a "hard" market providers bail out of the business in droves. From an insurance company's perspective, trucking is an extremely risky business to be in. For those who are not intimately familiar with the business (and most are not) it is a field that is characterized by almost unlimited financial exposure and a lack of control. Here's our bottom line. The trucking insurance field will always be more volatile than the general insurance market. It's simply the nature of the beast.

IN SEARCH OF THE 12-MONTH WONDER: Who makes the serious and honest money in Wall Street over the long run? Is it the people who are in and out of the market, switching investments regularly? Or is it the people who pick out quality investments and stick with them for a few years? Sure, there are always stories about short-term financial killings. But those who have a little patience and a nose for guality usually mathematically prevail. Many truckers believe they are buying insurance coverage for a period of twelve months. In reality, it is establishing an experience and loss rating profile that will heavily influence the costs of its coverage for a period of 2 to 5 years. The price of your coverage is the premium dollar you spend during a 12-month period. The cost covers a broader period of 2 to 5 years. Reducing the cost of your coverage requires getting control of your risks. In the hazard-prone trucking business, this is close to impossible for the typical agent or general insurance company. But, a trucking specialist with safety engineering, underwriting expertise, and insurance market credibility can, indeed, cut through the mustard to limit your risk and your costs. This seldom produces immediate benefits during the first 12 months when, after all, a loss history is being established by your outfit. There is probably not a general agent in America who could claim to have provided trucking insurance at a level of cost and availability close to that of trucking insurance specialists for the past 3 to 5 years.

YOUR VITAL LOSS HISTORY! The key task for your insurance provider is not to open up the checkbook and settle all trucking claims regardless of the cost. It is to coordinate and monitor your claims to determine their proper value. Consider the case of the gregarious local agent who is quite willing to settle a claim at all costs. He is, in effect, helping inflate your loss history and establish a level of experience that will be reflected in your insurance rates for the next 3 to 5 years. This may not cripple you in a "soft" market. But as a "hard" market develops, what you thought was an appetizing price could well take a huge, even lethal, toll in the cost and availability of insurance to your outfit.

THE BIG THREE THAT INFLUENCE YOUR INSURANCE COST: Three fundamentals of solid loss control and underwriting are pivotal in establishing the real cost of your coverage. (1) Safety Engineering. A trucking insurance specialist with a solid safety engineering background in trucking who knows what to look for in reducing your risk and exposure. He mergers your financial self-interest with that of the insurance company....and he should not be timid in making firm safety recommendations to you. Incidentally, you normally wouldn't receive safety engineering from an insurance company. Most of their expertise lies in the industrial area, not trucking. A good trucking insurance specialist can take what amounts to a bad risk and make it a good one through sound safety engineering recommendations. (2) Claim Monitoring. As indicated earlier, you need a seasoned observer who understands the real-world value of the claims in this industry.... someone who understands the heavy long-term consequences of high buck settlements. (3) Consistent Access to The Insurance Markets. Someone with a long track record of sound underwriting in trucking carries the most precious currency of everyone in the volatile trucking insurance field. It's credibility. Getting good coverage in a "hard" market and a reasonable cost requires exceptional credibility with the small number of insurance companies that eventually make the market. That comes from performance.

WHERE'S THE INSURANCE MARKET HEADED? We see the trucking insurance. market hardening once again sometime next year. Why? Loss ratios are creeping up significantly already. A number of the big players in trucking insurance are already talking about pulling out of the business because they don't believe they will be in a position to make money. We have not belabored the insurance sector in this 10-year old trucking publication, despite the fact that it is our primary business. Nonetheless, in a "hard" market we are besieged by companies that seek coverages at prices that are frankly unattainable on a short-term basis. But the lowest "real cost" is almost always possible for the trucker who is willing to look beyond a 12-month period. For many companies this real cost is not evident in foresight but painfully obvious in hindsight. We hope this commentary has contributed to the former. We'll welcome your questions and comments.

HOW DOES A CEO REALLY MANAGE CHANGE: Nobody moves into the "big seat" fully prepared to handle the scope of key decisions facing today's CEO. The job itself can be a black hole that swallows up time. But you can pour a lot of time into an organization and still make little impact. Archimedes said, "Give me a fixed point and I will move the world." If you are a CEO, you need some key "high leverage" issues to focus your energies on. This, in turn, will send some powerful signals throughout your organization which will begin the process of major cultural change. Two prime candidates for these high leverage areas are customer service and quality. Get passionate about customer service and you'll automatically start making heavy duty organizational change. David A. Nadler, president of the Delta Consulting Group, says, "From Day One the chief executive should be asking questions about satisfying and expanding the customer base...What is so unique about your products or services?...Why should anyone really buy them?...What gives them value?...How does your company make sure it is meeting customer needs and anticipating future ones? How do you instill customer commitment throughout your company culture?" These are the sort of customer-driven questions that will keep you and your organization focused on the essentials of growth.

THE HIGH TECH AND HIGH TOUCH OF CUSTOMER SERVICE: Most of your customers tolerate and even welcome automation. Indeed, many of your high-technology tools actually can bring service to a higher level of consistency and convenience. High-tech service can also create an increased level of customer demand for high-touch service. Research by TARP (Technical Assistance Research Programs) has found that human interaction problems can cause as much as four times more damage to your customer relationships than a product problem. High-touch problems like a poor explanation of a bill or invoice, an unreturned phone call and inadequately resolved complaints strongly impact your customer's perception of quality. Laura Liswood laid out the customer's bottom line on the so-called high­ tech/high-touch balance in a recent issue of Sales and Marketing Management. She says customers are now drawing the line and saying, "Give us machines to make our life easier and your cost less, but when we meet up with a human, it had better be good." When it's not good, it decreases repurchase intention. Your customer evaluates you on every contact that is made...with the human contacts counting four times as much.