James F. Mahoney, Attorney
Commentaries
 
     

April 2016

Where Are Trucking Insurance Rates Going in 2016?

Prediction: Reinsurance prices will continue to fall this year as competition for customers from hedge funds and other sources of alternative capital send premiums to their lowest in four years.

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A knowledgeable Lloyd’s broker once told me that the U.S. property and casualty market was but a boil on the rump of the worldwide insurance industry, meaning that while we in the U.S. transportation industry continually postulate on why and how to attract underwriters, our laser-like focus on insurance rates is a bit misguided; our rates are more dependent on the world reinsurance market and its focus on disasters, natural and man-made.

Reinsurance prices will continue to fall this year as competition for customers from hedge funds and other sources of alternative capital send premiums to their lowest in four years, according to Swiss Re AG.

“Price reductions have slowed down but there’s still pressure,” Edouard Schmid, the head of the property & specialty unit at the world’s biggest reinsurer, said in an interview in Zurich. “Having many years without large losses and an oversupply of traditional and alternative capital it’s more difficult for us to charge the prices we used to see for this protection.”

Swiss Re’s Property & Casualty unit posted a 22.2 percent return on equity for 2015, according to its earnings statement. That compares with a 4.7 percent ROE from the Stoxx 600 banking index in the same period, according to data compiled by Bloomberg.

Hedge funds, sovereign wealth funds and other providers of alternative capital set aside $72 billion for reinsurance last year, a 12 percent increase from 2014, even as allocations from traditional capital fell 4 percent to $493 billion, according to research by Aon Plc. That led to price cuts when policies were renewed on April 1, according to reinsurance broker Willis Re Inc.

Lower-than-normal claims will indeed draw competitors. So you certainly benefit by watching your CSA scores and fixing your Safety Management Plan, especially in light of the FMCSA plan to expand their ability to monitor poor safety performers. Consider altering the term of your policy, if you see indicators of premium moving south.

Global insured losses from natural catastrophes and man-made disasters in 2015 fell to $37 billion, compared with an average of $62 billion over the previous 10 years, so there should be more capacity entering the U.S. transportation market, with underwriters backed by serious capital taking a flyer at our business.

Nonetheless, a few opportunities do exist despite the overall reinsurance market’s predominance on rates: be safe (have a Safety Management Plan and follow it); correct CSA errors via DataQ (not surprisingly, many DOT violations on DVERs are incorrect – e.g., DOT officers often do not understand the 100 air mile exemption to HOS regulations and violate and criminally charge drivers without legal basis); intervene very early in liability, Comp, and cargo incidents: many can be kept small and out of your loss runs.