Operational Metrics- The Business of Trucking

Insurance agents generally really do not understand the financial benchmarks that allows truckers to assess their viability and profitability. Here are 4 tools courtesy of RLI Marine:


1. Average length of haul.

Shorter lengths of haul frequently involve higher rates per mile from customers, fewer miles per truck, and a greater percentage of non-revenue miles caused by re-positioning of equipment.

2. Average freight revenue per total mile (excluding fuel surcharges).

Average freight revenue per loaded mile + Non-Revenue miles (excluding fuel surcharge revenue).

3. Average miles per tractor.

4. Average freight revenue per tractor per week (excluding fuel surcharges).

Average freight revenue per tractor per week (excluding fuel surcharges) is a key measure of asset productivity. This operating metric takes into account the effects of freight rates, non-revenue miles, and miles per tractor. Calculating average freight revenue per tractor using all trucks takes into account the percentage of fleet that is unproductive due to lack of drivers, repairs, and other factors.


Operating high quality, late-model equipment contributes to operating efficiency, helps recruit and retain drivers, and is an important part of providing excellent service to customers. Operating tractors while under warranty minimizes repair and maintenance costs and reduces service interruptions caused by breakdowns. Order equipment with uniform specifications reduces parts inventory and facilitates maintenance.

Texting, Cell Phones and Truckers

You want to help your trucker lead the way to safety- how about coming up with a policy to not text, to drive hands-free without a cell phone and commit and write in their safety manual that a driver will not do such things. By the way, it is going to be legislated that way sooner or later and is already law in many states. See why from Teresa Long's article in the Insurance Journal below:

Cell phones, Blackberrys and iPods now infiltrate
work life as well as leisure time. These devices are
affecting job safety, a not-so-good vibration being felt,
literally, from coast to coast.
A Boston trolley driver is distracted while sending a text
message and slams into another car, injuring scores of passengers.
Even more horrific is the operator
of a commuter train in Los
Angeles who, while looking down to
send a text message, hits another
train and kills 20 people.
Virginia Tech Transportation
Institute researchers revealed that a
trucker looking down while texting
for a mere six seconds while motoring
at 55 miles per hour will travel
the length of a football field, and not
realize he traveled so far, so fast.
No longer is it only intoxicated drivers who are dangerous, it
is the “intexticated” drivers, as well.
The Harvard Center of Risk Analysis estimates that cell
phone activity contributes to 636,000 motor vehicle crashes,
330,000 injuries, and 2,600 fatalities each year. Although it’s hard
to put a number on how many of those are work-related, it is
safe to say employers need to be aware of potential ramifications.
A few years ago a company settled for $16 million because
one of its salespeople killed a person when driving while talking
on a cell phone.
Some businesses have already banned cell phones. They
understand the potential liability. Unfortunately, there are still
employers who fail to realize the urgency of the matter. Too
many believe that salespersons or the local delivery persons
can’t work fast enough unless they are multi-tasking.
But it’s time to wake up and smell the risk. Because most
assuredly the insurance company and their underwriters are
standing downwind and it’s only a matter of time before they
start sniffing around to see if employers have language in place
prohibiting the use of cell phones while driving.
Several politicians and the American Transportation
Association have already introduced legislation aimed at banning
texting while operating a vehicle. The proposed bill will
penalize states in violation of the law with the risk of losing 25
percent of their federal highway funding.
It’s not only the inappropriate use of cell phones that’s causing
undo risk, it’s also injuries to workers listening to iPods
while on the job. It’s when an employee is listening to ABBA
instead of a listening to a co-worker yelling out a warning or
hearing the beep-beep-beep of a forklift backing up. One aerospace
manufacturer took a proactive approach by banning 1,500
of its employees from using iPods at work, even though there
have been no incidents.
Human resources departments need to
know the ramifications of the new technology
in the workplace, put specific policy
language into the employee handbook,
properly train employees, and vigorously
enforce those policies. By doing
so, they can protect themselves from liability
by showing that the employee
knowingly violated a written safety rule.
Companies are putting themselves at
risk should a distracted employee be
involved in an accident. Plus, it is very
likely that there would be a workers’ compensation claim.
We can’t idiot-proof the world. But we can add protection in
the workplace and for the public. Nothing drives home this
point better than the story of a 25 year old truck driver from
upstate New York who was talking on a cell phone with one
hand and texting with the other. He
came up one hand short and lost control
of his vehicle, careened across a
front lawn and plunged his truck into
a swimming pool, injuring a woman
and her 8 year-old niece.
We can only hope that the company
he worked for had the foresight to
have an up-to-date policy on the do’s
and don’ts of the new technology.
Because recent cases have shown language
is not enough. The company
must also show it has enforced the
policy and properly educated the
employee.

CSA 2010- First Look and Who Cares? You Will.

CSA 2010 is an acronym for Comprehensive Safety Analysis 2010- which is a major safety initiative by the Federal Motor Carrier Safety Administration. While there are many goals of the CSA 2010, it in essence means more regulations for truckers, and more opportunities for a trucker to be fined and put out of business. The end game should be that the CSA 2010 will make our roads safer. CSA will be phased in various states throughout 2010.

What does this mean to truck underwriting? More data and thus more tools to be able to discern insurability and pricing.

Loss cost data will become available to those insurance companies that capture it. Look for insurance applications to be changed to ask this information.

One would believe that more regulation on both trucking companies and drivers would result in less substandard operations. That does not mean that trucking losses will be less necessarily- but the viability and fines for those truckers and drivers who are not in compliance will be in question most certainly.

I really like the summary by Professional Safety Consulting has done on CSA 2010 and attach it here for everyone's benefit:

CSA 2010 – What Is It?
Comprehensive Safety Analysis (CSA) 2010 is a new FMCSA safety initiative to more effectively identify and quickly intervene with truck and bus drivers and carriers who are not complying with safety rules. CSA 2010 will replace SafeStat and the current safety rating methodology process with a new Safety Measurement System (SMS). In February 2008, FMCSA launched its first field test of the program in Colorado, Missouri, Georgia and New Jersey, followed by Minnesota and Montana in May 2009. More test states were added in October 2009. Full implementation in all states is scheduled to begin in July 2010 and slated for completion near the end of 2010.
CSA 2010 will enable FMCSA and its state partners to assess the safety performance of a greater segment of the industry and to intervene with more carriers to change unsafe behavior early. The CSA 2010 Operational Model is the new way compliance and enforcement programs will be carried out. The Operational Model is characterized by (1) a more comprehensive measurement system, (2) a proposed safety fitness determination methodology that is based on performance data, and (3) a comprehensive intervention process designed to more efficiently and effectively correct safety problems.
The new Safety Measurement System (SMS) will measure the previous two years of roadside performance data and calculate a score in six behavior categories, called BASICs (Behavioral Analysis and Safety Improvement Categories). The BASICs are categories of behaviors measured in the SMS to rank entities’ performance relative to their peers. The BASICs represent behaviors that can lead to crashes: unsafe driving, fatigued driving (hours-of-service), driver fitness, controlled substances and alcohol, vehicle maintenance and cargo related. For example, with this new program, an inspection in which a driver received no Driver Fitness violations (i.e. a “clean inspection”) would have a positive impact on the Driver Fitness BASIC. Additionally, the SMS evaluates an entity’s crash involvement (Crash Indicator) relative to its peers, which may indicate a problem with the entity that warrants intervention. The Crash Indicator looks for histories or patterns of high crash involvement, including frequency and severity, based on information from state-reported crash reports.
FMCSA is developing a Safety Fitness Determination (SFD) methodology, to replace the current system, which is solely dependent on onsite compliance review results. The SFD will expand the use of on-road performance as calculated in the SMS and include results of all investigations. One of three Safety Fitness Determination (SFD) ratings will be assigned to a carrier: Continue to Operate, Marginal, and Unfit. With the implementation of CSA 2010, an on-site compliance review will not required to issue or change an SFD rating.
Using the CSA 2010 Operational Model, FMCSA and State partners will identify carriers for interventions. These interventions will offer an expanded suite of tools, ranging from warning letters to comprehensive on-site investigations that supplement the labor-intensive compliance review, to better address the specific safety problems identified. Under the new system, higher scores will cause a motor carrier to enter, or remain in the pool of carriers with deficient BASICs. Increased scores may make a carrier subject to more severe interventions.
Initial feedback from test states has suggested that achieving an acceptable rating under the new program will be a challenge, even for motor carriers currently operating under satisfactory safety ratings and acceptable SafeStat scores. All the more reason that carriers should begin preparing for CSA 2010 now, by analyzing their safety programs and the elements of BASICs that will be evaluated next year to determine their safety fitness. For more information, go to: http://csa2010.fmcsa.dot.gov
There are six important differences between the new Safety Measurement System (SMS) and the current measurement system, SafeStat:
1)SMS is organized by specific behaviors (BASICs)& Crash Indicator while Safestat was organized into four broad Safety Evaluation Areas (SEAs)
2)SMS identifies safety performance problems to determine the intervention level while Safestat identified carriers for a compliance review
3)SMS emphasizes on-road performance using all safety-based inspection violationswhile Safestat used only out-of-service and selected moving violations
4) SMS Uses risk-based violation weightings; Safestat has no such system for utilizing the weightings
5)SMS will be used to propose adverse safety fitness determination based on a carrier’s own data while Safestat has no such system for utilizing such data and therefore it has no impact on an entity’s safety fitness rating
6) SMS Includes two distinct safety measurement system: Carriers and Drivers; Safestat only sssesses only carriers

Initial feedback from test states has suggested that achieving an acceptable rating under the new program will be a challenge, even for motor carriers currently operating under satisfactory safety ratings and acceptable SafeStat scores. All the more reason that carriers should begin preparing for CSA 2010 now, by analyzing their safety programs and the elements of BASICs that will be evaluated next year to determine their safety fitness. For more information, go to: http://csa2010.fmcsa.dot.gov

Truck Insurance Underwriting- Data on Tank Operations

Most agents are understandably a bit bored with respect to underwriting. You hear about flatbed accounts being worse for liability writers and refrigerated carriers having worse cargo losses. That being said, the government is getting better with their data. Take the case of tank operations. Here is what you got ( from Professional Safety Consulting discussion):

• Over 1,300 cargo tank rollovers are reported each year
• 31% of ALL fatal commercial truck rollovers involve cargo tanks
• 93% of cargo tank rollovers occur on dry road surfaces
• Over 50% of cargo tank rollovers involve leaving the road
• 28% of cargo tank accidents involve driving too fast for conditions
• 44% of cargo tank rollovers occur on curves (including ramps); 56% on straight roads
• 25% of cargo tank rollovers involve straight trucks
• 66% of cargo tank rollovers involve drivers with more than ten years driving experience
• 78% of cargo tank rollovers involve some kind of driver error
The US DOT is working with its partners in industry, including carriers and vehicle manufacturers to significantly reduce rollover accidents.

Here is the challenge for our industry. We need to know what this all means.What was the insurance cost and the non-insurance cost of 1300 cargo tank rollovers and therefore what would be the loss cost? What is the insurance cost and the non-insurance cost of all the cargo tank fatalities? Should an underwriter or actuary impose a higher severity factor on cargo tank operations based on these statistics? What is the frequency of loss ( I assume it is much lower than your standard trucker.)?

The bottom line is this data makes us more knowledgable; however, it does not point to a particular solution or epiphany. We will get there with more data. Stay tuned.

The MCS-90 Made Simple

Truckers buy commercial auto liability insurance due to the MCS-90 which requires insurance to protect the public. But is the MCS-90 endorsement insurance? No. The attached article is one of the best I have seen on the subject and should be a required read for anyone writing trucking insurance.

The MCS-90 Is NOT Insurance
By Christopher J. Boggs, CPCU, ARM, ALCM
November 2, 2009

Twenty-eight years after its June 1981 introduction, the MCS-90 endorsement remains a highly misunderstood form. Apparent judicial misapplications of the intended meaning and purpose of the form have added to the confusion.
The MCS-90 was designed to assure that an at-fault "for-hire" or public motor carrier could fulfill its financial responsibility to the public, regardless of the insured's failure to comply with the underlying insurance policy's terms and/or conditions. But it was not designed or intended to extend coverage to non-insureds or create coverage where none existed. Above all, the MCS-90 was not created to and does not currently provide any insurance coverage within the wording of the form - insurance protection is extended only from the policy to which the endorsement is attached.Attachment of the MCS-90 does nothing more than a guarantee that there will be some source of funds available to pay for bodily injury, property damage or environmental restoration (collectively referred to as "public liability" in the MCS-90) made necessary by the negligence of the insured and its employees. However, this guarantee does not constitute insurance for one crucial reason: the insurance carrier issuing the MCS-90 has the right to recover from the entity named in the endorsement any payment made as a direct consequence of the provisions of the form.
In essence, the MCS-90 is more closely related to a surety bond "guaranteeing" that the insured has and will continuously maintain the coverages types and amounts mandated by law. And if the insured fails to maintain the required insurance coverage, the issuer of the MCS-90 will stand in the insured's place - for the public good. But the issuer of the MCS-90 can and will likely seek full reimbursement from the insured named in the endorsement.
The Motor Carrier Regulatory Reform and Modernization Act, signed into law by President Jimmy Carter on July 1, 1980, and the impetus for the MCS-90, requires motor carriers that transport hazardous materials to maintain "public liability" coverage of either $1 million or $5 million (depending on the material). As evidenced by the MCS-90's inclusion of "environmental restoration" within the definition of "public liability," the endorsement essentially "guarantees" that the motor carrier has pollution liability protection or a source of funds to cover a pollution loss as required by the law.
If, however, the motor carrier fails to maintain the required pollution coverage and there is a pollution loss, the MCS-90 issuing insurer will stand in place of the insured and pay the loss up to the legally required amount. But since the motor carrier failed to comply with the law, the insurer can then recover payment from the motor carrier.
To reiterate, the MCS-90 is not insurance; it is a financial guarantee protecting the public from the financial consequences of a motor carrier's failure to carry the statutorily required insurance protection. Any payment made solely under the provisions of the MCS-90 is recoverable from the defaulting motor carrier.
Remember, the burden to meet the statutory financial requirements placed on motor carriers engaged in interstate commerce is on the motor carrier, not the insurance carrier. When the MCS-90 is endorsed to a business auto policy, the insurance carrier takes on two roles; the first as insurer and the second as surety. These competing requirements and roles coupled with the fact that a few of the "guarantees" provided by the MCS-90 are broader than the coverage provided by the underlying business auto policy (BAP)necessitates that the insurer carefully underwrite and confirm the underlying coverages that are to be maintained by the motor carrier.
Where the MCS-90 is Potentially Broader
Pollution: Pollution losses are essentially excluded in the BAP. There are a few exceptions to the exclusions that do not extend to cover damage caused by materials being hauled. As stated in the above example, the MCS-90's definition of "public liability" includes environmental restoration - a pollution coverage. Since the insurance carrier issuing the MCS-90 has "guaranteed" that the motor carrier can pay for a pollution loss, it is incumbent upon the underwriter (and agent) to verify the necessary coverage.
Scheduled / Unscheduled Autos: Business auto policies written on a "scheduled vehicle" basis can also be expanded by the attached MCS-90. The endorsement states that it covers all vehicles owned, operated or maintained by the insured "regardless of whether or not each motor vehicle is specifically described in the policy…." If the insured with a symbol "7" or "46" forgets to list or add a vehicle to the BAP, the insurer is normally not required to provide coverage for a loss. However, the MCS-90 negates this policy provision and requires the insurer to pay the loss. Since the insurer is acting as a surety in such a case, they may be able to recover from the insured.
Drivers: The MCS-90 does not stipulate that individuals driving any vehicle or towing any trailer subject to the Motor Carrier Act have to be listed on the policy, qualify as an "insured" or even be considered "permitted users." In fact, the MCS-90 doesn't even address drivers, which has lead to unique court rulings.
Cancellation: Thirty-five days notice of cancellation is required by the endorsement, even for non-payment of premium. If the insured motor carrier is subject to Federal Motor Carrier Safety Administration registration, the FMCSA must get 30 days notice before the cancellation is effective. The catch is, the 30 days does not begin to toll until the FMCSA receives the cancellation notice in its Washington DC office. This is much longer than the standard notice of cancellation for non-payment of premium (between 10 and 15 days based on state law); so the insurance carrier may be "on the hook" longer than required by the underlying BAP.
Court Decisions Can Alter the MCS-90's Intent and Purpose
John Deere Insurance Company v. Nueva (found on OpenJurist.org) expanded the MCS-90 definition of "insured" to include an entity that was not even a party (a "stranger") to the underlying BAP. The Ninth Circuit Court ruled that "insured" status under the MCS-90 extended to include an entity that had use of the named insured's trailer after it had been sold.
John Deere's insured (Baljit Singh Sahota DBA Sahota Trucking) sold a trailer to Gurmukh Garcha DBA Blue Star Transportation. Before title on the trailer was transferred, it was involved in an at-fault accident caused by Blue Star; but even though Sahota no longer had possession of the trailer and was not a party to its use (contractual or otherwise), the court ruled that the provisions of the MCS-90 extended coverage to the trailer since the title had not passed. The purchaser became an "insured" on the policy per the court. In 2002, the Supreme Court issued an opinion that the Ninth Circuit's findings were incorrect, but at this point, the ruling stands as issued in 2000.
Deere v. Nueva is only one example of how courts can substantially alter the purpose and intent of the MCS-90. Some court rulings serve to cement the intended use of the endorsement. A recent Tenth District Court of Appeals case reversed and vacated 20 years of bad precedent in that district created by its 1989 finding in Empire Fire & Marine Ins. Co. v. Guaranty National Ins. Co.
Carolina Casualty Insurance Company v. Yeates saw the Tenth District court in California join the majority opinion in stating that the MCS-90 does not create coverage in an underlying BAP where no coverage existed. In fact, the court laid out two tests that must be satisfied before the MCS-90 can be called upon to respond to a loss:
the underlying [auto] insurance policy to which the endorsement is attached does not provide coverage for the motor carrier's accident; and
the motor carrier's insurance coverage is either not sufficient to satisfy the federally prescribed minimum levels of financial responsibility or is non-existent.
Conclusion
The intent of the MCS-90 appears rather self-evident on its surface; it is not insurance, simply a safety net for innocent parties injured by the negligence of the named insured. However, sympathetic juries and judges have expanded the protection.
Knowing how the form is designed to work should allow agents to effectively explain the need for the endorsement to the insured; beyond just, "because the government requires it." Also, being able to provide the necessary underlying protection will serve your client and make the underwriter more comfortable with the risk.