Can the “chronically underperforming” commercial auto segment bounce back? Tow truck companies aren’t so sure.
For tow truck drivers, risky environments are just a part of their day-to-day routine. When drivers arrive at the scene of an accident, they hook up the damaged vehicle surrounded by speeding cars along crowded roadways, which means that the potential for an accident or injury tends to be high. But that’s not the only peril they face: tow truck drivers repossess cars from angry owners, and the garages they work in are full of heavy machinery.
Until recently, tow truck companies were able to purchase insurance to mitigate the risk from these hazards. But tow truck insurers (alongside the commercial auto sector in general), have entered what AutoRisk’s Dan Silverman calls a hard market: skyrocketing premiums, rising deductibles, and reduced coverage.
“Going forward, not only should you expect to see an increase in premiums but also expect even more stringent guidelines to qualify for the top-tier carriers who offer the best coverage at the best prices,” he writes. But what’s causing this market disruption?
More Drivers, More Risk
The difficult market for tow truck operators reflects the ongoing trend of commercial auto insurers being slammed by costly car insurance claims brought on by an influx of distracted drivers on the road, rising vehicle repair costs, and increasing medical compensation.
As President and CEO of American Transportation Insurance Group (ATIG) Chip Thompson, , recently told Insurance Journal, rear-end collisions rank among the most pricey — and preventable — risks for tow truck operators and their insurance carriers. If the driver is distracted and rear-ends another vehicle, the damage to the tow truck could reach $30,000. Plus, that figure can grow even more when you add medical expenses and the cost to repair the other driver’s car.
All these factors have hurt the tow truck insurance market, and some towing companies have even been forced to close as a result. “We are losing one out of every four customers, and we are not losing them to other agents,” he explained. “They are shutting down.”
An Exodus of Carriers
For tow truck operators, it became even more difficult to find insurance when several carriers, led by Progressive, decided to exit the business line. “That was the bellwether for everything else that followed after that,” Thompson said. “In the last 18 months, we’ve lost eight to nine carriers in this space, and it’s a small field anyway.”
Those exits were no doubt prompted by an industry-wide rise in commercial auto sector underwriting losses that continued for the fifth consecutive year in 2015, according to Fitch Ratings. The agency bluntly called commercial auto insurance a “chronically underperforming product segment” for U.S. property/casualty insurers, which might explain why so few carriers are eager to stay in the market.
Focus on Prevention
Rising premiums have pushed tow truck operators to focus on accident prevention and safe driving techniques. Some companies are experimenting with placing cameras in and outside of their trucks to catch drivers engaged in risky behaviors, such as texting while driving. If caught, they are fired.
In addition to cameras, telematic devices can monitor driving behavior. Recording a truck driver’s daily behavior on the road could lead to better driving habits, not to mention lower premiums. As the tow truck industry rides out this “hard market,” an emphasis on safe driving practices may be the easiest path to lower rates.