Insurability Issues Detour Truckers: DEMOTECH EMERGES AS KEY MEASURE.

• Author: Voss, Doug
• Position: [COVER] - Cover story

The trucking industry is faced with a crisis of insurability in the commercial automobile liability market. To a great degree, this crisis results from nuclear verdicts coupled with fewer insurance underwriters. Furthermore, while the trucking industry pursues various remedies to address nuclear verdicts, Congress is seriously considering an increase in truck liability insurance.

A provision in the Moving Forward Act, passed by the US House of Representatives on July 1, 2020, would raise the minimum coverage level for general freight from $750,000 per accident to $2,000,000 per accident. This is occurring despite the need for more underwriters willing and able to insure trucking companies.

Many insurance rating agencies exist but AM Best is likely most utilized. However, AM Best tends to primarily rate larger underwriters rather than smaller, more regional providers. Smaller trucking companies may particularly benefit from the ability to procure insurance from the smaller, regional providers typically reviewed and rated by Demotech.

To evaluate the efficacy of Demotech, I have completed my review of Cole et al (2011) as well as Barth and Klein (2018). Evidence presented in these works points to the similarity of AM Best and Demotech ratings. Further, comparable AM Best and Demotech rated insurers had nearly equivalent impairment rates. Based on findings contained in the aforementioned articles, I believe utilizing Demotech's ratings as a supplement to the exclusive use of AM Best would provide a valuable and reliable service to the trucking industry.

BACKGROUND

Many insurance sectors including the trucking industry are faced with a crisis of insurability. This crisis is caused by several factors including nuclear legal verdicts and a reduction in the number of insurance underwriters willing to insure trucking companies. Greater risk combined with fewer insurance suppliers leads to higher insurance premiums, a factor cited in many recent trucking bankruptcy announcements.

Many insurance sectors including the trucking industry are faced with a crisis of insurability. This crisis is caused by several factors including nuclear legal verdicts and a reduction in the number of insurance underwriters willing to insure trucking companies. Greater risk combined with fewer insurance suppliers leads to higher insurance premiums, a factor cited in many recent trucking bankruptcy announcements.

Trucking companies are required by shipping partners and...