Time For A More Cost-effective Truck Insurance Model
A trucker friend of mine once remarked that prior to deregulation you could make money in the trucking business despite yourself. Back in those "good ole days" government protected routes bequeathed an industry with LTL powerhouses, high paying Teamster jobs, and healthy returns. Today the trucking industry operates largely using a free wheeling TL and increasingly intermodal template with nonunion drivers and owner operators. Profit margins they will exist at all generally come down to pennies on the dollar. It goes without saying that only the most productive trucking companies have survived this transformation - painful, but a net plus for consumers.
Now contrast the competitive untidiness in trucking with the inert if not orderly nature among the truck insurance sales. Life pretty much continues as it always has: same structure, same production model, same economics. Where convention breeds productivity, it certainly makes sense, but with truck insurance, convention has only meant unnecessarily high premiums.
Broadly speaking framework of the truck insurance business reduces into two segments: agents (including brokers) and insurance groups. Agents solicit and service business, while insurance agencies underwrite, issue policies and pay advises. Agents make money on commissions. Insurance companies make money on favorable underwriting results and investment income.
Contrary to the perception of truckers, operating profit margins for insurers are apt to mirror those in all trucking companies. Where truckers have their operating ratio, insurers have their combined ratio. Both measures quantify operating profit as a amount of revenue. In good years, both industries typically generate ratios between 90 and 100%, yielding operating profit margins as high as 10%.
By way of comparison, margins for the best successful truck insurance agents run as much as 20 to 40% in good times and bad: a pleasurable return considering agents bare no underwriting risk.
But let's not judge these economics too hastily. The18 wheeler agent has done an exceedingly splendid job of establishing himself as best purveyor of value for both trucking company and insurance broker alike. Here's the perception. From the insurance coverage company's viewpoint, your truck insurance agent provides an invaluable service have to address producing business and servicing clients. Therefore, the insurance company feels quite justified in paying healthy commissions particularly on business that generates a combined ratio of less than 100%. Correspondingly from the trucking company's angle the agent has an invaluable service as to his knowledge in the insurance market spectacular ability to match a trucking company's coverage needs with capable and affordable insurer. Why begrudge the man cash? Besides he always picks up the tab for lunch and golf.
However, with advances in technology, extremely only the insurer matters. The Internet increasingly has relegated the agent for the status of tag along. He a lot more serves as the conduit for exchange between trucker and insurer. Rather at a time of instant information, he increasingly gets in the manner for you. Need a quote? Google it. Looking for accident statistics? Go to Safersys. Curious about some insurance company's rating? Pull up A.M. Best. Curious about the type of freight a company hauls and the place of its airport terminals? Check out their website. Concerned about your loss ratio? E-mail the underwriter. Fender bender? Snap a picture from your cell then fire off a text message to the claims department. It's much more now efficient than leaving a voice mail message with a dealer.
Just as you no longer require a travel agent to book travel, you no longer need an insurance agent to buy insurance cover. Strangely, both trucker and truck insurer seem unwilling to acknowledge this fact. In order to degree, custom plays a role. Historically, most contracts between agent and insurer specify that the agent owns the buyer list. Thus, insurance providers generally remain often unwilling to communicate directly using insured's. Also truckers are in the habit of dealing with agents not underwriters.
A simple step toward efficiency would have all truckers insisting that neither agent nor insurer can claim ownership of these account. This change in practice would set the stage for direct negotiations between trucker and truck insurer, and by extension pave the way for lower premiums.
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