2025 Q1 Transportation Update: Navigating Challenges and Opportunities

As we move into 2025, the transportation sector continues to grapple with persisting challenges. Our 2024 US Transportation Market Outlook, published in Q4 2024, provided a comprehensive analysis of these challenges along with insights to help agents guide their clients through the evolving risk landscape. We extend our gratitude to everyone who engaged with our report and participated in its accompanying national webinar .

The State of the Transportation Insurance Market

As highlighted in our outlook and echoed by numerous insurance providers throughout 2024, to begin this year, insurance providers are expected to continue to pursue rate increases in 2025. This trend is driven by rising costs for parts and repairs, motor truck cargo values and increased liability exposure. The industry continues to remain unprofitable in commercial auto, with combined loss ratios as a whole exceeding 100% in 12 of the past 13 years.¹

Insurance carriers and programs are under pressure to achieve profitable underwriting profits and mitigate losses, leading to higher rates, withdrawal from certain business classes or tighter underwriting standards. This situation poses challenges for consumers, especially those with poor safety records or higher risk exposures, as they face limited options for adequate insurance coverage.

Litigation and Its Impact on the Transportation Industry

Litigation continues to be a significant concern for the transportation sector and the insurance sector.² Several states have enacted or are considering legislation to mitigate the financial impact of lawsuits on clients. Key issues include litigation funding, social inflation and nuclear verdicts, which have far-reaching effects on clients, carriers and insurance programs:

Litigation funding involves third-party investors providing capital to plaintiffs in exchange for a portion of any financial recovery. While litigation funding offers plaintiffs financial support, it can drive up settlement costs and jury awards.

Social inflation refers to the rising costs of insurance claims due to social and legal factors, including increased litigation, broader liability definitions and larger jury awards. Social inflation leads to higher premiums and increased costs for insurers.

Nuclear verdicts are extremely high jury awards, often exceeding $10 million, which contribute to the financial strain on the industry.

The landscape of civil litigation reform is evolving across the US, as governors and state legislatures increasingly recognize the need to address the so-called "Jackpot Justice" industry. This term refers to the perceived abuses within civil litigation that result in disproportionately large awards, often benefiting attorneys more than plaintiffs. Essentially, some of the litigation focuses on the impact of societal changes that lead to an impact on the insurance industry, leading to higher premiums and increased costs for insurers and therefore, consumers. This trend is particularly noticeable in areas like commercial auto, medical malpractice and professional liability insurance.

States Responding With Reforms

In response, states are implementing reforms aimed at curbing these practices. The trucking industry has been a vocal supporter of these reforms, which are seen as crucial for maintaining economic stability and fairness.

Proposed Reforms

Key areas of reform include:

Seat belt nonuse admissibility. Alabama, Georgia, Indiana, Nebraska, South Dakota, West Virginia and Wisconsin have introduced bills to allow the admissibility of seat belt nonuse in civil litigation. This reform aims to provide juries with complete information, potentially mitigating damages awarded in personal injury cases.

Phantom damages. Alabama, Connecticut, Louisiana, Missouri and West Virginia are targeting "phantom damages," which refer to inflated medical costs that plaintiffs don't actually incur. These reforms seek to limit awards to actual expenses, reducing the potential for excessive verdicts.

Third-party litigation financing. A broad coalition of states are addressing third-party litigation financing. These reforms aim to increase transparency and regulate the involvement of outside investors in lawsuits that can drive up litigation costs and encourage larger settlements. States seeking reform include Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, New Jersey, New York, Oklahoma, Rhode Island, West Virginia and Wisconsin,

Precluding direct action (admitted vicarious liability). Alabama and West Virginia are working on reforms to preclude direct action against insurers when vicarious liability is admitted. Preclusion can streamline litigation and reduce unnecessary legal costs.

Damage caps. States such as Alabama, Louisiana, West Virginia and Wisconsin are considering caps on damages, particularly noneconomic damages, to prevent excessive awards that can destabilize insurance markets and increase costs for businesses.

Joint and several liability/allocation of fault. South Carolina is focusing on reforms related to joint and several liability, which can hold defendants responsible for the entire amount of a judgment regardless of their degree of fault.

Shorter statute of limitations. Missouri is considering shortening the statute of limitations for certain claims, which can reduce the timeframe for filing lawsuits and potentially decrease the number of frivolous claims.

Failure to equip. Florida, Arizona, Indiana and Louisiana are addressing issues related to the failure to equip vehicles with necessary safety features, which can impact liability and damages in accident cases.

Jury anchoring. Indiana, Missouri and Oklahoma are looking at reforms to prevent "jury anchoring," a tactic where plaintiffs' attorneys suggest high damage amounts to influence jury awards.

Enacted Reforms

While the above are still in the works, some reforms have already taken effect:

Tort reform. In 2023, Florida enacted sweeping tort reforms aimed at reducing litigation filings by 50%. These reforms include a reduced statute of limitations for negligence actions, stricter standards for determining liability and increased transparency regarding medical expenses. These changes are expected to help contain costs and reduce the frequency of nuclear verdicts.

Caps on damages. A 2023 Iowa law introduced a $5-million cap on pain and suffering damages and limited negligent-hiring claims. These measures aim to provide relief for insureds while maintaining accountability, thereby reducing the likelihood of nuclear verdicts.

Meanwhile, a 2024 West Virginia law implemented a significant legal reform that caps noneconomic damage awards in civil lawsuits involving personal injury or wrongful death claims against commercial motor vehicles at $5 million.

Litigation abuse prevention. In Texas, 2021's HB 19 seeks to thwart litigation abuses such as "reptile theory" tactics, where plaintiffs' attorneys appeal to a jury's survival instincts by casting defendants as threats to community safety. This law aims to prevent manipulation of jury emotions that can lead to nuclear verdicts.

In Montana, 2023's Senate bill 269 places restrictions on third-party groups that finance civil litigation, a development that motor carriers operating in the state welcomed. Although the legislation doesn't outrightly prohibit litigation financing, it promotes transparency by mandating that third parties register with the Montana Secretary of State.

Insurance requirements. New Jersey is taking a different path: A 2024 law mandates a $1.5 million minimum statutory liability insurance limit for vehicles over 26,000 pounds. While this law attempts to ensure adequate coverage, it also aims to increase transparency and accountability for clients within the state.

Legislative Reform Sticking Points

The efforts to limit settlement amounts through legislative reforms in states such as Louisiana and Wisconsin have faced significant challenges, as evidenced by the recent vetoes by the governors of both states. These vetoes highlight the complex and often contentious nature of tort reform, particularly when it comes to capping damages in civil litigation.

In Louisiana, the governor vetoed tort reform legislation that was aimed at stabilizing excessive insurance and legal costs impacting the trucking industry.³ The proposed reforms included measures to limit certain types of damages and introduce transparency in litigation processes. Despite strong support from the trucking industry and business advocates, the governor's veto reflects ongoing debates about the balance between protecting plaintiffs' rights and addressing economic concerns.

Similarly, the governor of Wisconsin vetoed a bill that sought to impose a $1 million cap on noneconomic damages in lawsuits involving commercial motor vehicle carriers.⁴ The legislation was intended to curb nuclear verdicts and reduce the financial burden on the trucking industry. However, the veto underscores the challenges in achieving consensus on such reforms, with concerns about limiting compensation for injured parties playing a significant role.

There's a growing consensus on the need for reforms that balance justice with economic realities, particularly in the commercial auto sector. Such reforms aim to curb excessive litigation costs and reduce the impact of nuclear verdicts, benefitting consumers, businesses and the economy.

What to Tell Your Clients

What can clients do to help reduce their insurance rates in the future and lessen their exposure to litigation? A comprehensive safety plan can help. There are several key components in a plan designed to enhance safety, reduce risk and ensure compliance with regulations, and we're happy to guide you through a sample plan.

A water-tight safety plan can lead to a safer and more efficient operation for commercial auto clients. This plan also can help reduce potential exposure to litigation, reduce overall insurance costs and provide more array of coverage options.

As the transportation sector navigates these complex challenges, staying informed and proactive will be crucial for success in 2025 and beyond. We look forward to engaging with all of you this year and to share how RPS can have a positive impact on your business.