In November 2024, the RPS Transportation team held a webinar on the state of the transportation market, discussing key trends, challenges and opportunities for insurers, brokers and clients. Our RPS experts included Mark Gallagher, vice president of National Transportation; Mike Mitchell, area president; Charles McCloskey, area vice president; and Eden Hancock, area vice president. Let's recap their discussion.

The State of the Transportation Market

Trucks remain the backbone of the US economy, transporting 72.6% of all goods by value, according to the American Transportation Research Institute (ATRI). The industry comprises 13 million trucks and 3.54 million drivers, with 95.8% of trucking companies operating fewer than 10 trucks. These small, often family-owned operations face mounting pressures from fluctuating freight rates, rising costs and regulatory challenges.

Gallagher noted that, since the COVID-19 outbreak, the transportation industry has undergone significant changes. During the epidemic, demand skyrocketed, resulting in higher freight rates and quick expansion. However, this boom was followed by a dramatic collapse, known as the "Great Freight Recession," which began in March 2022. He explained that an oversupply of trucks and diminishing demand have resulted in low freight rates, leaving many operators battling to stay in business. While there are early signs of improvement, such as a steady uptick in freight rates, the market remains tough.

Cargo and Cyber Theft

Cargo and cyber theft remain prominent in the industry and are persistent threats. "Phantom shippers" exploit vulnerabilities in invoicing systems, redirecting payments fraudulently. This convergence of physical and digital theft necessitates advanced security measures and heightened vigilance across the supply chain.

Insurance Industry Pressures

The transportation insurance sector has faced challenges, too, said Gallagher, with a 12.5% rate hike in 2023 extending into 2024. However, even with higher premiums, insurers continue to grapple with profitability issues, evidenced by a combined loss ratio of 109.2 in 2023 following a decade of losses. The insurance industry saw a temporary reprieve from mounting losses during the pandemic, with light traffic on the roads.

Insurers are responding by urging clients to adopt risk-mitigation measures. Technologies like dash cameras and telematics have become more prevalent, offering opportunities for cost savings and better underwriting outcomes. These measures require collaboration and trust between insurers and insureds to yield meaningful results.

Economic Trends and Headwinds

Economic conditions remain a double-edged sword for the industry. While freight rates are beginning to recover, they're still low compared to pre-2022 levels, reinforced Mitchell. At the same time, trucking companies face rising costs for equipment, maintenance and labor, compounded by interest rate hikes. Fuel cost is the only item that hasn't increased.

Moreover, insurance premiums increased by 12.5% during 2022-2023, according to data from ATRI that McCloskey shared during the discussion. This increase offsets many of the savings truckers gained from decreased fuel costs.

In addition, the Federal Motor Carrier Safety Administration (FMCSA) Drug and Alcohol Clearinghouse has tightened compliance, potentially sidelining more than 177,000 drivers due to unresolved drug and alcohol violations.

Geopolitical tensions, port strikes and consumer spending shifts add further complexity. Stocking warehouses ahead of tariff changes offers short-term freight volume growth but raises questions about sustainability.

For 2025, Mitchell expects freight rates to trend upward, although not at the same level as before. At the same time, the economy is expected to continue growing, which is good news for truckers.

Social Inflation, Litigation Funding and Nuclear Verdicts

The industry continues to be burdened by social inflation and nuclear verdicts, where outsized jury awards significantly impact insurers and insureds. Long-tail auto liability losses, with courts tied up in litigation, have resulted in claims still being open after five years. While legislative efforts in some states aim to curb these issues, more comprehensive reforms are needed.

State-Specific Challenges and Reforms

State-level legislation significantly shapes the transportation insurance landscape. The following are several states that have either enacted or are proposing reforms and their potential impact.

Florida: Sweeping tort reforms enacted in 2023 have reduced litigation filings by 50%, offering early signs of cost containment. McCloskey explained that these changes include a reduced statute of limitations for negligence actions and stricter standards for determining liability. Another change is to require more transparency on medical expenses.

Expectations are that the reforms in Florida will have a positive impact.

Georgia: Georgia is exploring tort reform to address direct action statutes and predatory litigation practices. Progress has been slow but shows potential for long-term benefits, according to Hancock.

Iowa: A 2023 law introduced a $5-million cap on pain and suffering damages and limited negligent-hiring claims. These measures provide much-needed relief for insureds while maintaining accountability, explained Hancock.

New Jersey: A 2024 law mandates a $1.5 million minimum statutory liability insurance limit for vehicles over 26,000 pounds. Insurers and brokers are required to notify insureds of the limit change. While this law aims to ensure adequate coverage, it's also led to increased costs and operational challenges, with some businesses considering relocating to contiguous states, according to McCloskey.

Texas: HB 19, passed in 2021, seeks to thwart litigation abuses like "reptile theory" tactics, in which plaintiffs' attorneys appeal to a jury's survival instincts by casting defendants as threats to community safety.

While implementation challenges persist, the legislation represents a step toward fairer liability determinations, said Hancock.

The Road Ahead

To navigate these challenges, stakeholders must embrace collaboration and innovation:

  • Data sharing: Insurers and clients should leverage telematics and electronic logging devices (ELDs) to improve risk assessment and operational efficiency. Many carriers now offer discounts and subsidies for adopting these technologies.
  • Tort reform advocacy: Industry participants must support legislative efforts to limit excessive litigation and ensure fair liability standards. Joining state trucking associations can amplify these advocacy efforts.
  • Customized solutions: The growing complexity of risks demands tailored insurance products. Brokers and insurers must work closely to design policies that address unique client needs.
  • Focus on profitability: Maintaining profitability requires a balanced approach to rate adjustments and loss mitigation for insurers. Reinsurance markets play a critical role, with program success heavily dependent on robust claims management and adequate data.

Opportunities in the Excess and Surplus Segment

The Excess and Surplus (E&S) insurance market has emerged as a vital growth area. With its ability to tailor policies to complex risks, the E&S segment is well positioned to meet the needs of transportation clients facing unique challenges — including providing coverage for public auto, cross-docking and ride-share services.

Listen to 2024 Transportation Market Outlook: Strategies for a Shifting Landscape on demand.