The trucking insurance sector, already the focus of a great amount of industry hand-wringing due to higher rates, now faces the question of just whether a carrier’s insurance policies cover any sort of impact from a pandemic.
The answer: It’s probably too early to tell. That was the view of Matt Rathje, vice president of operations at TrueNorth Companies, speaking to a webinar organized by the Scopelitis law firm last week. Rathje was on the call with Dan Cook, TrueNorth principal and practice manager.
If a trucking company looks to its insurance policy and tries to argue that the pandemic has created a “business interruption,” Rathje said the response is likely to be that most policies cover events like a fire or a tornado. In most cases, he said, pandemics or epidemics are not covered.
“So we are anticipating that some insurance companies will say that the introduction of the virus doesn’t necessarily constitute a direct fiscal loss to insured property,” Rathje said.
But Rathje also noted that it was early in the game. He said TrueNorth has received reports already of suits being filed in certain parts of the country, “where the companies are contesting how the fiscal loss trigger is being applied.”
“Ultimately, there is likely to be a body of case law that will develop and provide clarity on these topics,” Rathje said.
Cook was a bit more of a soothsayer on the call. Neither Rathje nor Cook would predict the direction of insurance rates, which was one of the biggest industry concerns prior to the outbreak of COVID-19. But Cook talked in detail about disruptions that might occur as a result of the way he expects industry to react in the wake of a trucking market that will be looking to cut costs and survive.
That is one part of a mix of developments that are going to disrupt insurance markets. Cook said if insurance company clients cut back on their coverage and insurer income from premiums comes down with it, the insurers will see operating ratios rise. As in trucking, a rising ratio is a negative move.
“At the same time, they will start to see their investment returns decrease in this zero-interest-rate environment,” Cook said.
Other trends will impact insurers as well. Drawing from experience, Cook said in a down economy, companies — not just in transportation — “cut expenses where they can and that will include areas relative to safety, whether it’s staff or other investment.”
Assets will run longer: “The average age of equipment will tip up,” Cook said. There might be delays in the deployment of safety technologies that had been planned.
The end result, Cook said, is “it will lead as it always does to some increase in claim activity.”
The insurers’ loss ratio will start to rise under that scenario, Cook said, “and those things together will start to decrease the surplus in the industry.”
With the combination of lower premium income and minuscule investment returns, according to Cook, the road to profitability is through what he called “underwriting results.” And the surplus that he forecast would erode under his scenario will impact the “capacity” of the industry to write insurance.
“I’ve been talking to a lot of insurance company executives, and one thing that is pretty clear is there is increased selectivity going on,” Cook said. “They’re going to be a lot more careful on who they take on as their partners.”
Given those trends, the best thing to do at this point, Cook said, is to communicate with your broker and underwriters. Let them know, he said, “about your plans and how you’re going to come out of this.”
Rathje urged carriers to get creative now to help get through the difficult times. For example, he said that if a company has outstanding legal actions against it, now might be a good time to get a “quick settlement” with some plaintiffs who have filed suit against a carrier. It might be individuals or another company. But as Rathje noted, a lot of companies are starting to suffer financially, providing motivation to settle a case and bring in cash, albeit at a lower figure than they might have envisioned earlier.