Insuring your fleet of trucks is one major requirement of operating any wastewater service provider business. Accidents can happen at any time, and the right commercial auto insurance reduces the risk of paying high out-of-pocket expenses if an accident occurs.

“It’s a cost of being in business,” says Hugh McLaughlin, owner of 88 Drain in Tucson, Arizona. “You need to have it, because without it, you could lose everything.”

Commercial auto insurance coverage comes in a variety of forms. The two main types are liability and physical damage. Liability covers injuries, damages and lawsuits if an employee is at fault in an accident. Physical damage covers the cost to repair a vehicle.

Commercial vehicle plans can be complex, and insurance rates vary. In general, rates are based on driving records, age and value of the vehicle (and equipment), use of the vehicle, and radius of operation.

NO LONGER PROFITABLE

In recent years, the dynamics of commercial auto insurance have changed, according to Mark Friedlander of the Insurance Information Institute, a national association that helps the public understand insurance.

One of the major changes relates to profitability. The commercial auto market has not achieved an underwriting profit since 2010, according to Friedlander. The insurance sector has been unable to keep pace with losses after years of inadequate pricing and underestimating what it will pay for claims.

“Sustained negative financial results have led carriers to take steps to reduce their exposures by nonrenewing commercial auto customers throughout all business sectors,” Friedlander says.

A smaller pool of insurance carriers means fewer options for businesses shopping for commercial auto insurance.

“It’s an ugly situation. The options that are available are limited,” says Mark Herring, senior vice president of Heffernan Insurance Brokers in Portland, Oregon. Heffernan Insurance Brokers insures about 220 portable restroom companies in a program it’s offered for the past 27 years.

Herring Insurance Brokers has worked with countless septic and drain cleaning companies in his 22 years at Heffernan. He’s witnessed various trends in commercial auto insurance, but 2020 stands out. Major insurance carriers are exiting the market, and the repercussions are alarming, he says.

“It’s simply supply and demand,” Herring says. Contractors have fewer options and are paying more for insurance coverage. “I only know of one national preferred insurer now writing in this industry. This doesn’t take into account the insurers that would not write in this industry in the first place.”

A representative of SeptiCover confirmed the closure of its septic program and reported the company did not have a replacement carrier. In years past, SeptiCover’s property and casualty insurance program was endorsed by the National Association of Wastewater Technicians.

Representatives of other insurance carriers were contacted but declined to comment regarding an exit from the commercial auto insurance market.

CLAIMS ARE KILLING US

Herring attributes the shrinking provider list to an increase in traffic crashes, which lowers profitability margins. He points to four reasons for the increase. First, smartphones and distracted driving cause more accidents. Second, when a crash occurs, it costs more to repair today’s high-tech cars than older models. Third, medical costs and jury awards are up significantly.

“Jury verdicts are so crazy. There’s even a new term out there: It’s called a ‘nuclear verdict,’ and that’s a verdict over $10 million,” Herring says.

Lastly, traffic has increased. “It’s a fact that if more people are driving on the road, there’s going to be more accidents,” Herring says. 

Friedlander agreed that more vehicles are on the roads. In addition, more commercial vehicles are on the roads due to the growth of the U.S. economy, particularly in the online shopping market.

“As companies face labor shortages, they are hiring more inexperienced truck and van drivers who have a higher rate of accidents,” he says. With all of these factors, profitability has decreased for commercial auto insurance carriers.

“It could take just one or two fluke accidents to wipe out a lot of profit of an insurance carrier,” Herring says. “Auto and truck insurers just want to reduce their exposure to auto claims.”

SHARPEN YOUR PENCIL

Not only are fewer insurance companies offering commercial insurance, but finding a competitive price isn’t as easy today. According to the Insurance Information Institute, commercial auto rates have increased for all business sectors since 2016. In the fourth quarter of 2019, premium rates increased 8% over the previous quarter. Early this year, rates were forecast to rise 6% to 12% across the U.S.

Contractors who file claims put themselves at risk to pay much more for commercial auto insurance, Herring says. “I’ve had several people call me and say, ‘I’ve got a problem. My agent said he can’t find insurance except for a 200% increase,’” he says.

Finding the right coverage at a competitive price is not as easy today. To get the best insurance rates, Herring tells contractors to avoid filing claims, carefully screen and hire employees, be financially stable and focus on safety.

“They need to do everything they can to keep their company looking good to the insurance company,” he says.

Friedlander recommends shopping around for the best policy. Independent agents write nearly 90% of commercial auto policies, so talking to an independent agent is a good first step, he advises.

“An independent agent can provide companies with quotes from multiple national and regional carriers,” Friedlander says.

Ben Smith, owner of Marvel Sewer and Drain in the Minneapolis area, has worked with the same independent agent for the past five years. Referred by a friend in the septic business, the agent is based in the Midwest and knows the sewer and drain industry. He provides the options and personalized insurance Smith was looking for.

“We found a product that worked really well for us at a good rate,” Smith says. Working with an agent you like and trust is important. “Make sure they have your best interest in mind and they have the right coverage so you’re not overpaying.”

START SAFETY PROGRAMS

To keep insurance expenses in check, Marvel Sewer and Drain doesn’t file many insurance claims and uses a GPS-tracking system in the vehicles to record driving habits.

“If I have bad drivers, they’re not going to work here,” Smith says. Dashcams and backup cameras are a must, he adds.

Safe-driver training adds another layer of protection. At 88 Drain, a new employee orientation program includes riding with the boss.

“I ride with them to see how they drive,” McLaughlin says. “If we have an aggressive or assertive driver, I have a talk with that person. It’s not a good marketing strategy when you have billboards on the side of your vehicle.”

A good understanding of insurance jargon takes the guesswork out of choosing the right policy.

“It’s grueling to wrap your head around all the language the insurance companies use, but I find it’s really important — if someone comes in with different rates — to compare apples to apples. Sometimes these lower rates come in, but they’re omitting coverage that you think you have,” McLaughlin says.

GO SHOPPING

Finding the right commercial auto coverage at a competitive price may not be as easy as it once was. Fewer insurance carriers offer the insurance in 2020, and premiums are increasing. Contractors who take proactive measures can get their best deal.

“You have to be on top of it,” McLaughlin says. “Like everything else in your business, you have to evaluate what you’re spending and what percentage of your overhead is going toward that particular area. Look at it to see if you can make it more efficient.”

Insuring a fleet of trucks won’t be on the “Things I Love About My Job” list, but it’s important to protect your business.