Talking Points on Financial Requirements of Commercial Motor Vehicles

2014-06-23 | , Owner Operator Independent Drivers Association (OOIDA)

Talking Points on Financial Requirements of Commercial Motor Vehicles
Despite the Federal Motor Carrier Safety Administration’s own study showing that less than 0.2% of truck-involved accidents result in property and personal injury damages that exceed current minimum liability coverage requirements, in April 2014 the agency announced that it would be moving forward with a “high-priority” rulemaking to increase the minimum financial responsibility requirements for freight and passenger carriers.

What are the current liability insurance requirements?

  • Law requires $750,000 minimum coverage for general freight carriers and $1 million to $5 million minimum coverage for hazardous materials carriers.
  • Due to market demands, most small trucking companies have policies in-force for $1 million and pay annual premiums in the range of $5,000 - $8,000 per truck.
  • In setting these requirements, Congress intended DOT to evaluate impacts to safety, the trucking industry (including small and minority carriers, as well as independent truckers), and the ability of the insurance industry to provide coverage.

How much of an increase is being proposed and why?

  • While FMCSA itself has not yet named a specific dollar amount, outside groups have already called for significant increases:
    • H.R. 2730, introduced with the backing of the American Association for Justice, calls for a new minimum coverage level of $4.42 million, a 490% increase over current levels, with annual inflationary increases required.
    • After hearing from presenters arranged by FMCSA, the Motor Carrier Safety Advisory Committee recently voted to recommend an increase to $4-4.5 million for general freight (up to a 500% increase) and $21 million for hazmat (a more than 300% increase).
  • Most of the rationale for the higher minimum requirements is based upon the inflation of medical costs and ensuring that every person involved in an accident is fully compensated, despite the fact that less than 0.2% of truck-involved accidents result in property and personal injury damages that exceed current minimum liability coverage requirements.

Are these proposals supported by data/will they lead to safer roads?

  • No study shows that higher insurance requirements or coverage levels result in improved safety performance of a motor carrier.
  • FMCSA has not examined issues such as the cost of premiums or the capacity of insurers to provide coverage at higher minimums.  In fact, the agency is moving forward before conducting a data-driven analysis on the impacts higher minimums would have on insurance markets and availability.
  • Further, FMCSA has not considered the fact that crash victims also have the civil court system available to seek damages beyond insured levels.
  • FMCSA admits that there is limited data on claims and settlements, and that most of their conclusions are based upon anecdote.  Insurance experts have stated that “the free market does a good job of determining the appropriate level of insurance [coverage]…regardless of the financial responsibility requirements that the government sets.”

What does the available data show on crashes and insurance claims?

  • DOT data does show, however, that catastrophic crashes where the truck is at fault are extremely rare.  More than 99% of all truck-involved accidents do not exceed the current federal minimum; the average truck-involved crash results in approximately $18,000 worth of damages.
  • Of the approximately 20 crashes per year with damages exceeding the current minimum, DOT states that, “there is no realistic dollar amount that will necessarily ensure that every possible crash victim is fully compensated.”
  • “Truck-related” and “truck-involved” do not indicate fault.  Based upon government data, it is estimated that 75% of these crashes are the fault of the passenger car driver, and passenger car accidents are the vast majority of all crashes nationally.  In contrast to truck insurance, the average minimum auto insurance policy is around $48,000.

What will be the impact on insurance cost and availability from the proposed increases?

  • The impact on premiums is unclear given the many variables at play; however, estimates point to premiums increasing by as much as a factor of four – to $20,000 or more per truck/year.
  • Small to medium-sized fleets, who must pay premiums on a per-truck basis, would also see their costs rise dramatically, leading to downsizing within these operations.
  • Even a safe, well-capitalized trucking company may have difficulty accessing insurance at any costs as insurers struggle to meet growing capitalization requirements.  A capitalization crisis will likely hit the truck insurance segment.

What will be the impact on experienced and small business truckers?

  • This would cripple single truck owner operators, who typically take home about $40,000 per year after expenses such as fuel, taxes, maintenance, and insurance.
  • Despite the lack of any link between more insurance and safer operations, the survival of 40% of small business trucking companies would be at risk.
  • Not only would this shut down thousands of individual small businesses, but truckers with millions of miles of accident free driving would be off the road.
  • As many large motor carriers self-insure and do not buy insurance on the open market, they would largely be immune from the impacts of an increase.