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Carriers covering the last-mile transportation industry have posted loss ratios in excess, or just about, of 100% since 2010. Social inflation, a term used to describe seemingly excessive jury awards, is getting much of the blame. Juries are indeed leaning toward so-called “nuclear verdict” payouts. Plaintiff lawyers are absolutely playing to jury fears to drive expensive settlements. Carriers are definitely experiencing higher claims costs, in turn driving up the cost of insurance. But is it really about devious plaintiff lawyers and gullible jurors?
Social inflation is a vague, overly simplistic scapegoat for a raft of ongoing commercial transportation issues. Although big payouts are occurring in tandem with rising inflation, all too often “nuclear verdicts” are rooted in some last-mile companies chase for a quick buck – obvious and egregious acts of willful ignorance and flagrant disregard for public safety. It gives plaintiff attorneys all they need at trial to outrage a jury. Businesses quick to hire inexcusably bad drivers or skimp on routine safety inspections should look in the mirror, not the juror’s box for the source of rising insurance costs.
The pool of participating insurers determines premium prices. Every bad apple company affects pricing for the entire participating group. Poor decisions rooted in saving time and money eventually catch up to businesses, from rising premiums or an unfortunate courtroom appearance. Organizations need to address red flags before they become evidence in another million-dollar payout trial.
Decreased road traffic at the start of the pandemic decreased accident rates. However, while claim frequency went down, severity was up. Those clearer roads induced up bad habits – speeding, breaking basic traffic laws, etc. – that lingered after traffic returned to normal. At the business level, surging eCommerce demand and a shrinking good-labor pool pushed many companies to hire inexperienced and marginal drivers. Coupled with cutting safety corners, last-mile companies created conditions for rising problems and premium increases.
So, before joining the “social inflation” blame game for rising premiums some of these frequent offenders within the last-mile segment should focus on some persistent industry-wide issues that can protect their business and their premium rates. These include:
The pandemic-driven eCommerce explosion has made last-mile delivery a popular topic due to ongoing labor struggles and high-profile nuclear verdicts. While more insurance companies are getting out of last-mile than getting in, there is still interest from new carriers as demand continues.
Transportation businesses looking to save on expenses might wrongly consider cutting back on safety or even cutting a few corners during the onboarding process just to not lose out on the business. Companies should think twice about such practices and refocus their attention on solvable problems now that could end up causing very costly issues in the future.
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Connect with the Risk Strategies Transportation team at transportation@risk‐strategies.com.