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The shrinking world of insurance in the Transport & Logistics sector

When it comes to maintaining commercial operations and mitigating risk, haulage and logistics firms know that haulage insurance and logistics insurance is critical for protecting the business against losses associated with a range of risks – everything from fire, theft, collisions and vandalism to legal costs arising from an injury. 

It’s also, of course, a legal requirement. But when it comes to securing competitive haulage insurance or logistics for the transport sector, the current insurance market can make for a challenging environment for all involved.

The state of the insurance market

The rapidly hardening insurance market is the result of several factors. Firstly, the industry has had persistent high loss ratios since 2013.1 But rising repair costs, insurance fraud, extreme weather events and of course, Covid-19, are all playing their part in creating this challenging insurance environment.2

Severe claims are also impacting the state of the market. Costs are increasing with ‘Ogden’ discount (a calculation of the lump sum compensation due in personal injury and fatal accident cases3) impacting claims costs. This is a major factor for insurers to consider in terms of Third Party injury claims and how they attribute and rationalise for that rate increase in line with severe claims.

Other factors affecting rate increases more globally due to the economic downturn include:

  • Low interest rates and investment returns remaining consequently low.
  • Political events such as Brexit cause uncertainties, a need to consider relocation and often portfolio transfers out of the UK to the EU for ongoing EU business presently written in the UK.
  • Currency movements (especially GBP/USD), which have been significant and impacted earnings.

Looking more closely at Transport and Logistics, the sector is seeing the following trends:

Specialist fleet insurance

Premiums on the specialist fleet insurance policies required by the UK transport and logistics sector, are rising.4 New vehicle technology such as advanced driver assistance systems (ADAS) are increasing the complexity of vehicle repairs. These claims repair costs are much higher than they used to be. And personal injury claims costs are also on the rise, along with vehicle thefts. This is all effecting premiums.

Cargo insurance and stock insurance

A number of insures have exited the market. Those left are rating each risk as though they were presented as ‘new’ and not as a renewal. Reduced capacity for stock storage with excess stock placement is becoming more common. There’s an increased need to focus on physical security and fire protections. And transit risks now require information on incoming versus outgoing shipments, international versus domestic shipments, maximum values per shipment, average shipment values and detailed loss records.5 

Haulage insurance

Haulage and logistics insurance sectors faced significant rate increases back in 2017. Premiums are stabilising at this higher level, so don’t expect to see them reducing any time soon. Hit hardest are those who fail to show improved risk management strategies or have had a volume or size of claims in recent years.

What many people don’t consider is a large fleet will often give cause for an insurer to need to re-evaluate how they purchase reinsurance for that risk. Reinsurers are facing exactly the same problems and with that the reinsurance rate is increased because of it. This is one of many reason why it’s important to take proactive steps to help manage your risk.

Steps you can take to manage transport risk

Underwriting this class of business risk is a complicated proposition – and a costly one at that. So it’s no surprise that today’s insurance companies increasingly expect to see evidence that firms are taking steps to actively manage risk. This can include:

  • Frequent evidence of driver safety, education and skills training.
  • The use of in-cab driver and vehicle monitoring/tracking technologies.
  • Enforcement of a mobile telephone policy that complies with the law and stresses driver safety.
  • Utilising route and workload planning systems and a working hours’ policy (covering maximum number of driving hours, and when breaks should take place).
  • In-cab safety equipment (fire extinguishers, first-aid kits).
  • Details of procedures implemented to mitigate future losses.

We discuss what makes an effective risk management programme and how you can start/refine yours in our Transport and Logistics: staying future fit in uncertain times eBook.
Download the full Transport and Logistics eBook today.

Navigating the challenging market

Insurance shouldn’t be painful, after all it’s there to protect you. By engaging with your insurance broker as early as possible, this will help them navigate the market and secure the right insurance solution for your business. If you have any questions regarding the themes in this article our haulage and logistics experts are here to listen.

 

Sources:

1 insurancejournal.com

2 trucknews.com/hard-market-continues-to-drive-truck-insurance-costs-higher

3 gov.uk/ogden-tables-actuarial-compensation-tables-for-injury-and-death

4 fleetnews.co.uk/fleets-turn-to-fixed-cost-insurance-as-premiums-rise-says-arval-uk

5 momentumsolutions.co.uk/a-hardening-market

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