Commercial insurance, specifically commercial truck insurance, is a multi-billion dollar industry with policies and transactions being made worldwide. Because of this, so many different factors go into underwriting insurance premiums. And predicting the cost of truck insurance can be difficult when shopping for truck insurance quotes. When a trucking company faces an unexpected rate increase, one of the most common questions is, "Why did my insurance go up? I didn't have any claims!" I wish the answer were simple, but insurance companies are in business to make money, and when they lose money, they must adjust premiums accordingly. Catastrophic losses have a trickle-down effect on insurance premiums across all lines, and that can cause truck insurance costs to increase unexpectedly.
A breakdown of trucking liability insurance:
When you purchase insurance for commercial vehicles, you are buying the primary liability limit based on the truck insurance requirements from your State or the FMCSA. The standard Auto Liability limit for over-the-road trucking companies is a $1,000,000 combined single limit policy. When an insurance company sells you the policy and provides proof of coverage, typically, that insurance provider is not taking any or all of the risk from the $1,000,000 in the event of a loss. What some insurance companies will do is, of that, $1,000,000, only take on $50,000 - $250,000 of the risk. The remaining risk will be transferred to a reinsurance company that covers the claims above the set amount. Essentially, insurance companies purchase insurance to cover claims over a certain dollar amount, and the amount they pay is similar to a deductible. These reinsurance companies are located worldwide and provide reinsurance to most commercial and personal insurance companies.
How world events affect the cost of insurance:
Because commercial insurance companies transfer some of their risk to a reinsurance company, they can pay for a portion of the claims. It is important to remember that both insurance and reinsurance companies have limits on their capacity. Regarding insurance, capacity is the highest amount of insurance or reinsurance available to the market or industry. When a specific sector has a high volume of claims where the primary insurance company cannot pay for all the loss, the reinsurance companies take on the loss and payout losses. When this happens, the reinsurance companies will adjust the rates they charge to the primary insurance carriers. Insurance limits established worldwide are not infinite and only go as high as capacity exists, and when capacity is breached, it wreaks havoc on the insurance industry.
Take, for example, a large hurricane or tornado, a year of heavy semi-truck claims, or a catastrophic event like the World Trade Center attacks events like these caused billions of dollars of unexpected losses and sent waves throughout the insurance industry. These events are usually reinsured in London and have been since before the sinking of the Titanic. In the aftermath of the attacks on the World Trade Center, there were many changes in the world that we all experienced. After the significant losses experienced by the reinsurance companies that insured the World Trade Center, they reduced their insurance capacity. With less insurance to sell, the available insurance premiums only increased.
It doesn't have to be a world-changing event like 9/11 to cause reinsurance capacity to shrink and truck insurance premiums to increase. This can also happen if there are significant storms like hurricanes or tornadoes. Most truck insurance companies are diversified so they may experience losses unrelated to trucking. On a smaller scale, if the trucking insurance company has a year of higher-than-expected trucking claims, they offer a premium increase of 15-20% in some cases to help cover their losses from the prior year. These increases can affect everyone that that company insures because, usually, those increases are passed along to all of their insureds. So even though a trucking company may have had a year with no claims, they still see an increase in their renewal premium through nothing they have done.
All losses, especially catastrophes, can affect trucking insurance premiums. Insurance companies are set up to make money, and when more premium is needed, or the stock market falls, insurance companies seek premium increases. At Thomas Wilson Group, we understand that unforeseen increases in premiums can be challenging and frustrating. That is why we work with multiple insurance companies to find the best truck insurance quotes for our customers at their annual renewal. Some things are out of our control but know that we do everything in our power to get you the best truck insurance premium we can find.