2021 Industry Outlook: Transportation and Logistics

By Brian Jungeberg, Vice President, Transportation

2021 Industry Outlook: Transportation and Logistics

COVID-19 and the e-commerce boom, drones and robots making deliveries, Assembly Bill 5’s (AB5) effect on the gig economy. These are just a few trends we’ve seen emerge in 2020.

As we near the end of this year, its clear many obstacles remain for 2021 as the pandemic shows no signs of slowing down. Even with the promising development of Pfizer, Moderna and AstraZeneca’s vaccines showing a 90—95% effective rate in preventing the disease during preliminary trials.

But while there are no guarantees for what’s to come, we can offer a few predictions for the transportation and logistics industry over the next year.

The Battle of Labor Laws Will Continue

Proposition 22 passed this year, exempting gig economy firms from AB5, a landmark labor law in California that reclassifies independent contractors (IC) as employees. But the battle is far from over. California Assemblyman Kevin Kiley has already vowed to repeal the law come 2021. Additionally, President-elect Joe Biden, and Vice President-elect Kamala Harris opposed Proposition 22, with their campaign promising to create a federal version of AB5.

As the legal challenges mount, transportation and logistics companies need to bear in mind that these outcomes directly impact insurance market underwriting and rates. While legal outcomes that support a strong IC model can positively impact the market, those negative to the model can adversely affect areas like hired/non-owned auto liability, employment practices liability, availability of wage and hour coverage, employer’s liability lawsuits and workers’ compensation.

The Hard Market Will Persist

Before COVID-19 hit, the commercial auto insurance market, specifically the transportation sector, was already navigating a hard market. In fact, premium rates in the sector have increased 10–15% year-over-year since 2010 in an effort to return the market to profitability. This, coupled with the increased demand for the industry during COVID-19, will continue to drive rate increases in 2021—with the expectation of seeing another 10—15% increase on both auto liability and auto physical damage coverage.

A few factors that contribute to this increase include:

  • The rising cost of new transportation and logistics vehicles and upgrades to on-board technology and safety equipment are impacting rates. Even a small accident can cost thousands in repairs due to the cost of safety sensors and technology. If this trend continues, it’s likely that insurers will mandate higher physical damage deductibles on these vehicles.

  • Much like the commercial auto insurance market, the umbrella/excess insurance market has been riddled in claims over the past 10 years. This, coupled with nuclear verdicts, continue to push rate increases for this line of coverage. Additionally, fewer insurers remain in the freight brokering operations sector, leaving those who remain to raise rates.

  • As the popularity of the gig economy and shared-use platforms have grown and begun allowing almost any person to participate, the public and broader legal community have taken note. Now, more attorneys understand the IC model and have found ways to tie liability for an IC’s action back to the company the IC is contracting with. This equates to more hired/non-owned auto liability claims and settlements, driving rates upwards.

Safety and Telematics Programs Will Become the Norm

The use of safety and telematics programs have traditionally been viewed as a “bonus” to underwriters. However, due to all the factors above, engaging in these programs and platforms is set to become a requirement. Simply put, if you aren’t actively engaging with your drivers on safety training, you should start doing so in 2021.

While it’s uncertain how the COVID-19 pandemic will continue to play out, it’s clear it will continue to affect the industry. Even though business is booming, rate increases are likely to continue and fuel a hard market.

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