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Time For A More Cost-effective Truck Insurance Model

Time For A More Cost-effective Truck Insurance Model

A trucker friend of mine once remarked that ahead of deregulation you could funds from 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 profits. Today the trucking industry operates largely inside a free wheeling TL and increasingly intermodal template with nonunion drivers and owner operators. Profit margins if they exist at all generally come down to pennies on the dollar. No need to explain 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 of your truck insurance agency. 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 insurance premiums.

Broadly speaking the structure of the truck insurance business reduces into two segments: agents (including brokers) and insurance merchants. Agents solicit and service business, while insurance firms underwrite, issue policies and pay claims. Agents make money on commissions. Insurance companies make money on favorable underwriting results and investment money flow.

Contrary to the perception of truckers, operating profit margins for insurers tend to mirror those of most trucking companies. Where truckers have their operating ratio, insurers have their combined ratio. Both measures quantify operating profit as a number of revenue. In good years, both industries typically generate ratios between 90 and 100%, yielding operating profit margins all the way to 10%.

By way of comparison, margins for successful truck insurance agents run often 20 to 40% in good times and bad: an excellent return considering agents bare no underwriting risk.

But let's not judge these economics too hastily. Your truck agent has done an exceedingly splendid job of establishing himself as operating purveyor of value for both trucking company and insurance provider alike. Here's the perception. From the insurer company's viewpoint, the truck insurance agent gives 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 around the trucking company's angle the agent provides an invaluable service since most his knowledge of the insurance market and his ability to match a trucking company's coverage needs with capable and affordable insurer. Why begrudge the man a living? Besides he always picks up the tab for lunch and golf.

However, with advances in technology, more and more only the insurance agency matters. The Internet increasingly has relegated the agent for the status of tag along. He no longer serves as the conduit for exchange between trucker and insurer. Rather toy trucks of instant information, he increasingly gets in the way. Need a quote? Google it. Looking for accident statistics? Get on Safersys. Curious about some insurance company's rating? Pull up A.M. Best. Intrigued by the type of freight a company hauls and the positioning of its terminals? Check out their website. Concerned about whatever is lost 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 so much more efficient than leaving a voice mail message with a financier.

Just as you no longer need a travel agent to book travel, you no longer need an ins . agent to buy auto insurance. 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 client list. Thus, providers generally remain reluctant to communicate directly with their insured's. Also truckers are in the habit of smoking of dealing with agents not underwriters.

A simple step toward efficiency would have all truckers insisting that neither agent nor insurer can claim ownership in their account. This alteration in practice would set the stage for direct negotiations between trucker and truck insurer, and by extension pave the way for lower quotes.

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