Understanding Insurance Premiums and Avoiding Nuclear Verdicts

Why are insurance premiums on the rise and how can transportation companies better defend themselves from nuclear verdicts? During the Motive Innovation Summit last week in Nashville, Tennessee, an insurance company actuary and a trucking defense attorney provided answers to those questions and more.

Motive’s chief legal officer hosted a panel discussion with Doug Marcello, an attorney at Saxton & Stump and the chief legal officer at Bluewire LLC; and Nick Saeger, AVP products and pricing, transportation and specialty, Sentry Insurance; to provide insights.

Saeger has been at Sentry for 23 years and said the company generated $4 billion in premiums last year, with about $500 million coming from trucking. He said when it comes to trucking, Sentry deals with two segments – fleets with 10 or fewer units and fleets with 10 to about 500 units.

Marcello, an attorney who also has a CDL, has handled trucking-related cases in 38 states. Bluewire, where he is chief legal officer, is a data company that analyzes the risks and vulnerabilities of the commercial trucking industry.

While many may associate injury lawsuits as being filed against trucking companies that move freight and big rigs, any commercial vehicle or vehicle class could become a legal target following a collision.

What Are the Factors That Insurers Look at When Setting Premiums?

Saeger said when looking at insurance rates related to trucking, actuaries break it down into three components.

First, he said the “old school” practice is to start by looking at geography details.

Where is the home base for the truck? Is it a more rural area in Kansas, or a more congested and heavily populated area like New Jersey? Rural areas have less risk compared to the larger areas.

Next, insurers will look at how long the typical routes are, which Saeger said is referred to as radius.

“Longer haul, long distance, that tends to be a little bit higher rates versus local, shorter, or intermediate routes. The theory is that if you're driving mostly local and intermediate routes, you tend to know those roads a little bit better. As a driver, you understand the traffic patterns and the flows and how to get to where you need to be,” Saeger explained.

So, an actuary cares where the truck starts, how far and where it travels, but also the final destination as well.

“If you're driving to a rural area, there are less things to run into, less things to hit, less chances for accidents,” he added, explaining how the converse is true when the destination is an urban area.

But there are also other reasons the location matters, since as Saeger explained insurance is regulated in each state and each state has a different starting point for setting rates.

Also, an insurer will look at the “loss experience” of a company, meaning getting a grasp on the number of previous crashes or collisions and the extent of those claims.

“We have found also that loss experience tends to be probably the most important factor when it comes to predicting future losses, which is, technically what an actuary does,” explained Saeger.

He noted that we now live in an age driven by technology and data and how insurers can access things like the Federal Motor Carrier Safety Administration (FMCSA) Safety Measurement Scores (SMS), which also is a good predictor of future losses.

Sharing Telematics Data with Insurers to Improve Safety

Saegar said his company is nearly a year into a partnership with Motive in which fleets equipped with Motive telematics share data with the insurer. At this point, the insurance industry is still learning how to use this data, but for now, those customers who share the data with Sentry are getting up to a 5% discount on premiums.

Insurtech, using telematics data to help set insurance rates, is still relatively new but allows a way for fleets to be monitored by insurance companies, prove the safety of drivers, and in many cases earn discounted rates going forward.

What’s Happening in Today’s Environment to Cause Premiums to Rise Quickly?

Saeger said that the commercial auto insurance industry has not seen a normal year in probably 15 to 20 years. But, he added that even during what he calls a normal year, rates go up because of inflation.

“So, my job as an actuary is to predict what things will cost in the future. Inflation tends to make things cost more. So as a result, if my insurance company is to be as profitable as I want it to be, I need to raise the rates a little bit in the future to keep up with that inflation,” explained Saeger. “Actuaries call it a trend, why we don’t call it inflation is a long-lost mystery.”

He added that the buzzword in insurance in recent years has been “social inflation,” which he said is a level of inflation beyond what you could have predicted based on just looking at the numbers.

“I always tend to say it's a confluence of events that's caused it, and that's sort of what we have here. It's a confluence of events. So, it starts with attorney involvement,” added Saeger.

He pointed out there are more attorneys involved in trucking claims than in the past, mentioning that it is easy to drive along highways and notice the injury attorneys advertising for their next new client ready to file a lawsuit against trucking companies.

“So, in addition to there being more attorneys, they're using more and more tactics that are making it trickier and trickier for insurance companies to handle the claims,” Saeger said. “One that I like to bring up that I don't know that a lot of people outside of insurance know is something called a time-limited demand.”

That is when an attorney holds onto medical information or other information related to the lawsuit and dumps it all on the insurance company with short notice, maybe allowing a week to respond, and requests information about policy limits. Some states allow the insurer to negotiate with the plaintiff's attorney, but many do not. The result is the insurer cannot ask for more time.

“And all of a sudden, your billion-dollar limits are exposed as an insurance company if you do not settle within policy limits. So, we see that more we've seen that more and more recently, with more attorneys getting involved,” he said.

Also, he noted, attorneys are using a new tactic called the reptile theory, which tries to invoke fear and seek to have the case decided by a jury based on emotions rather than the facts of the case.

Plus, plaintiffs are winning higher award amounts with nuclear verdicts. Again, that impacts the losses that insurance companies now have to prepare for in advance. That in turn can drive premiums higher.

What are Defense Attorneys Doing to Help in the Legal Fight?

It is easy to see Marcello is not a fan of those billboard lawyers eagerly soliciting people to sue trucking companies.

“They live by the mantra, ‘Hit a truck, get a check’,” he said.

What is worse about those lawyers, according to Marcello, is the toll they take on the injured, widowed, and disabled that they represent if they win or settle.

“They take 40% from them. And then after they take 40%, they take their cost on top of that. That's what we're dealing with,” said Marcello. “And that's a word that needs to get out because this isn't about justice. This is about money, period, pure and simple.”

Best Preparation to Fight Crash Lawsuit is to Start Today

He shared that once before he and Saeger shared a stage, and the attorney asked the actuary how the insurance industry prepared for nuclear verdicts against trucking companies. As told by Marcello, Saeger said the same way as preparing for a claim related to a natural disaster, meaning there was no way to predict the situation in advance.

“That's why today is the most important time for you, before the accident,” Marcello told the audience at the Motive event.  “Think about if you had to get on the stand to describe the perfect safety program, or what would you want to tell the jury, and then go back to your office and create it now.”

He said everyone can complain about those attorneys on the prowl for the next case that could lead to a nuclear verdict, but trucking and transportation companies have a big advantage ­— immediacy.

“Nobody knows about that accident before we do. And if you're not prepared, and you don't respond immediately to preserve the evidence to begin your defense, then you have lost your greatest of assets,” explained Marcello.

Create a plan for accident response, he added while explaining that he has free forms related to accident response planning if anyone wants to request them.

Challenging the Plaintiff’s Attorney Early in the Process

Marcello said the immediate step his office takes when they receive a letter of representation from the plaintiff’s attorney is to fire back with a letter providing medical releases and details of where the defendant works and request the same from the plaintiff. Plus, he will ask to have the plaintiff go for an independent medical examination immediately.

“Either you're going to let us examine the person you claim is injured or you're going to have to explain why you wouldn't let us do it down the road,” he added. He also suggests getting early surveillance of the plaintiff. “In today’s YouTube world, nothing beats visual surveillance like that. People expect it.”

Marcello even suggested in some cases the trucking company should be the first to file a lawsuit.

“If we can argue they’re at fault and we've suffered damages, cargo, lost time, we'll sue them because given the opportunity they will sue us in a judicial hellhole where the worst verdicts occur. We sue them first, we get the jump on it. We can lock in jurisdiction in the rural place, the conservative area where the verdicts are reasonable, where folks still know the value of the dollar,” he explained. “That’s the type of aggressive things you need to do to get out there and get after them.”

What Kind of Tips Can You Give to Adopters of Safety Technologies?

“Cameras, cameras, cameras,” quickly and emphatically answered Marcello. “We (trucking) get blamed for everything and anyhow and the cameras give us the basis to defend it.”

Some companies may still worry that data from cameras, or other telematics, will have to be turned over to plaintiff’s attorneys during discovery and might be harmful. Marcello suggested not fear the data out of that concern, but rather embrace the data.

Saeger pointed out that the best way to use data is by using it to prevent crashes, thereby the lawsuit will never happen.

He said situations detected by telematics such as excessive speeding events, hard-braking events, and following distance events, are basically like practice crashes. With that, he means those being detected before a crash happens can lead to driver coaching and curtailing the driver's behavior and habits that if left unchecked could lead to crashes.

“If you start seeing too many of those, you have to get in there and you have to work with your drivers and work with your safety team to build something better,” said Saeger.