Risk Management and Mitigation: How to Navigate It
The intermodal industry poses a particular opportunity, and challenge, for insurers since multiple modes are involved. What are the strategies currently being used for risk management and mitigation in intermodal?
Dan Cook, the principal and leader of TrueNorth’s Transportation National Primary Practice, and Trent Tillman, principal and executive vice president of TrueNorth’s Transportation Division, said they see a more restricted group of insurance companies in intermodal, particularly for larger trucking fleets. This is partly due, they explained, to the uniqueness of intermodal, as well as the heavy reliance on independent contractors.
With that in mind, they said, there’s more of an enterprise risk underwriting approach, with equal focus upon the corporate and independent contractor aspects.
"Hard insurance markets and tough business environments are opportunities for good businesses to gain competitive advantage," TrueNorth’s Cook and Tillman said in a joint statement to Intermodal Insights. "Some motor carriers are always getting a good deal on insurance in every market situation, and someone always gets the best deal."
An essential activity for motor carriers, they wrote, is to reassess the business’s legal structure, which can be critical at a time when companies may not be able to afford or find as much excess insurance as wanted or needed.
"Motor carriers are facing more large liability claims than ever, many with less limits of protection than before," Cook and Tillman said in their joint statement. "Ensuring your legal structure can weather an attack is critical, both with regard to your corporate structure—solidifying your corporate veil—and your IC-related risk, ensuring your independent contractor operating agreement is tight and current."
Regarding if there’s a particular mode of transportation that presents greater risk management issues, Kimberly Wakeman, a divisional vice president with Avalon Risk Management, said that each has its own unique challenges.
"Ocean carriers—we’re seeing lots of cancellations of services. There’s numerous sailings being cancelled—there’s just not enough product to move right now. And it filters out to everyone in the supply chain and to each mode," she said.
"I don’t think one particular mode has a huge disadvantage, but I would say that the trucking industry, because of the north and south border crossings, those are down, and even air and ocean, those volumes are down, so that all has repercussions for the trucking industry," she explained.
Wakeman also added that fewer sailings plus more demand means a greater chance of pilferage.
"If there are smaller shipments, more people are needing that product," she explained. "You have to be careful with the transit and making sure that everyone is being as safe and diligent as possible in insuring that you have procedures and processes in place to make sure that there’s less business interruption and that the drivers are safe, the product is safe, the containers aren’t marked specifically—they’re non-descript so that they’re not easily identifiable of what the merchandise is."
"As we get into early June," she predicted, "I think you’re going to start seeing additional security issues in the supply chain."
Cindy Verrecchia, a senior account executive with Bondar Insurance Group, added that another issue is that the motor carriers are all so different it is hard to categorize them.
"Each segment of the industry faces its pros and cons from a risk management standpoint depending on the operations," she said. "Drive away/auto haulers face a different set of safety challenges and priorities than a refrigerated goods hauler does. Frac sand haulers are currently facing their own safety and economic challenges that are different than flatbed steel haulers."
"Safety is a concern shared by all insureds that get behind the wheel," she continued. "The only difference is the manner in which various motor carriers achieve the highest level of safety."
The TrueNorth representatives, however, said it’s been their experience that the risk management issues they encounter tend to be more geographic in nature than mode, because some intermodal operators specifically don’t provide service to areas where they believe it to be particularly hard to manage the business risk.
Much of this, they said, is the result of local legislative or regulatory environment and the added insurance cost in those areas may be in part due to the insurance industry viewing those jurisdictions similarly.
Another example, they said, is the varying environments as relates to the utilization of independent contractors for intermodal drayage. Recent challenges to this model in California, New Jersey and elsewhere create inherent risks to the viability of the motor carriers that operate in those areas, thus causing many motor carriers to rethink their business models, Cook and Tillman said.
Regarding the amount of progress that’s been made in mitigating risk in the intermodal sector as a whole, as well as each of the individual modes, Verrecchia remarked that awareness and focus on the industry’s risk management is at an all-time high and that there are more technological resources and data accessibility then ever in the industry’s history.
"Lane departure systems, telematics/cameras, stability traction control, speed governors, etc. are all now increasingly common in our industry," she said. "An argument can even be made that e-logs have also made our industry safer. Understandably, we may not like some of these technological progressions because they may impact insurance premiums, can be expensive and can be invasive to our operations. However, our industry is certainly more focused on safety than ever before."
"Technology has helped a lot," she said. "We’ve got GPS devices on the trucks and on the containers. There’s the bar coding, there’s all kinds of trackers, there’s the RFID tags and GPS trackers. You’ve got the electronic data interchange. It’s definitely helped. You also now have seals that also have tracking devices in them. I think that there have been improvements that have helped the supply chain, specifically intermodal."
Norris Beren, founder and chief executive with consulting and training firm Risk Reward Education Inc. added that upkeep of equipment has been another factor in helping mitigate risk management for motor carriers.
"In the last few years, the quality of maintenance, the care about maintenance has gone up significantly," he said. "You’ve still got issues with chassis and brakes and lights, but for the most part, intermodal has done a lot better in the last few years. There’s a lot more concern; there’s a lot more attention to detail."
A big question is how much are insurance companies concerned about the current economic climate in the wake of the global impacts precipitated by the COVID-19 pandemic.
"The current level of economic uncertainty is high with insureds," Verrecchia said. "In my experience, I also find the economic optimism is just as great from insureds, once the wake of COVID is behind us."
"The fundamentals of the economy are anticipated to regain strength, and insureds feel the future is bright once this pandemic is behind us," she said.
Cook and Tillman said that insurance carriers are "significantly concerned" about current economic conditions, adding that they see increased financial scrutiny when considering new underwriting opportunities and are starting to see more active efforts to monitor motor carrier financial health on an active basis.
Some insurance companies, they said, are looking for specific financial items that they did not previously require, like more frequent financial statements, confirmation letters of covenant compliance and verification of line of credit availability and usage.
"As motor carriers take necessary steps, such as requesting delayed premium payments, reduced mileage or revenue endorsements, and vehicle layups, it increases both concern and awareness regarding the financial impact upon motor carriers," Cook and Tillman stated. "It is critical to not only make the necessary asks, but to also communicate your larger strategy toward recovery."
The two TrueNorth principals added that underwriters are often more likely to provide support when they understand two things: what other financial steps you’re taking to both cut costs and preserve cash flow; and what your best estimate is for the future, regarding needed support and business recovery strategy.
Wakeman said that due to COVID-19, business insurance coverage might be forced to evolve.
"Premiums, for instance. Typically, viruses and things like that are excluded," she explained. "So, I think as we move forward, we’ll have to figure out how that works. You’ve got this new pandemic that nobody anticipated that’s covering every industry, every business and in the meantime, you still have the regular interruptions that happen—fires and hurricanes and car accidents and workers’ comp—all those other factors that continually happen, as well. It potentially becomes an enormous risk for insurers and the insured. I definitely think it’s going to change how coverage could look in the future."
Beren added that individual motor carriers may also need to make changes to secure better underwriting.
"If motor carrier executives wants to take a real, real hard look at their operations and are willing to make adjustments where there are weaknesses … they can turn around their operations to the point where it could have an impact to the extent that they become much more attractive to an underwriter," he said.
"I think that the biggest point that I can make is that if we try, we can do a lot better, if we really look at our businesses with a different lens," he added. "Writing a policy and implementing a policy, it’s a big deal. Documenting things is a big deal. Training, retraining is a big deal. When you can change the attitude of drivers, you change the company. And when you change the company, that’s when the insurer says ‘yeah, we’d like to talk to you about your accounts’. It changes the game."