Trucking Insurance: Addressing Regulatory Gaps and Risk Management

Trucking Insurance: Regulatory and Operational Challenges

Trucking insurance continues to see rising concerns due to the prevalent use of instant issue policies, especially among lower-performing fleets. A significant regulatory gap exists, underscored by the absence of mandatory safety assessments prior to issuing insurance policies. This gap has contributed to a heightened incident rate, as highlighted by the Federal Motor Carrier Safety Administration (FMCSA) data.

Key Findings from FMCSA Data

An analysis of FMCSA data highlights that of the 2.8 million insurer-carrier relationships, the riskiest 5% of carriers are responsible for underwriting 31.9% of crashes and fatalities. Alarmingly, insurance providers are not mandated to consider safety records before policy issuance, transforming the insurance system into a financial entry hurdle instead of a safety mechanism.

Regulatory Oversight and Contributions to Risk

The federal minimum insurance requirement set at $750,000 in 1980 remains unchanged, failing to reflect current economic realities. While some insurers introduce voluntary underwriting standards through sophisticated risk evaluations, others depend on algorithmic methods, issuing policies without evaluating safety records.

Market Dynamics and Risk Concentration

Larger insurers cover more than half of carriers with a weighted risk score of 6.24 and are involved in 27.7% of crashes. Conversely, smaller insurers, which cover a significant market segment, reflect a risk score of 9.55, with these carriers contributing to 72.3% of accidents. This stark risk distribution reveals the need for more rigorous underwriting regulation in the industry.

Assigned Risk Market Challenges

The Automobile Insurance Plans Service Office (AIPSO) manages the residual market, requiring insurers to cover high-risk carriers. This assigned risk market faces increasing strain, particularly if stricter underwriting mandates drive more unsafe carriers into it, thereby escalating premiums and insurer losses.

Federal and State Insurance Regulatory Landscape

The McCarran-Ferguson Act delegates insurance regulation to the states, prioritizing solvency and claims practices without enforcing pre-insurance safety checks. While Risk Retention Groups (RRGs) operate under single-state regulations, they lack the backing of state guaranty funds, posing risks of increased insolvency.

Proposals for Enhanced Regulatory Oversight

Raising insurance minimums alone will not resolve inadequate underwriting issues. Implementing mandatory safety review requirements before issuing policies could provide substantial regulatory improvement. Leveraging FMCSA’s data during inspections may aid in better managing crash risks. Platforms such as THE TEA Intel, offering insights into insurers' risk profiles, could advance underwriting standards and risk management processes.

Restructuring insurance regulations based on available data could enhance safety checks, improve underwriting practices, and mitigate risk concentration within the trucking sector.