Time To Suspend Required Minimum Carrier Insurance Regulation

With the recent signing of the 2015 appropriations bill (including the suspension of the 34-hour restart rule), it appears as though the government is beginning to take a common sense approach to the needs of the transportation industry. However, there's another elephant in the transportation room that must be addressed for the industry to continue making headway-- it's time to suspend the required minimum carrier insurance regulation.

On November 29th, the FMCSA issued an Advanced Notice of Proposed Rulemaking (ANPR), floating the idea of increasing the minimum insurance financial responsibility carriers must bear. Stopping short of suggesting an increased dollar amount, the FMCSA's ANPR asks for the opinions of carriers as well as others involved in the transportation industry.

The ANPR features 26 questions for carriers to answer including:

• How much the carrier pays for insurance
• Opinions on how a raised insurance minimum would affect small and large carriers
• How much carriers expect their insurance premiums to rise in the event of a minimum insurance increase.

Carriers must respond to the questions posed in the ANPR within 90 days (by February 26).

With this issue on the table, here are the top four reasons why the required minimum insurance regulation should be suspended:

Small Carriers Are Adversely Affected Compared To Large Carriers

Insurance is one of the top operating costs faced by all carriers. The current minimum, enacted in 1985, stands at $750,000. While many large carriers are self-insured through letters of credit, bonds, and other financial considerations, smaller carriers often rely on insurance coverage for which they must pay premiums. According to feedback on an article posted by DAT Solutions, smaller carriers often pay an average of $4,000 - $13,000 per rig per year-- no small amount for a small carrier or owner-operator.

An increase in insurance premiums for smaller carriers and owner operators would likely cause many carriers to downsize their businesses or permanently shut their doors. Which leads to the next point:

Increased Premiums Will Lead To A Decrease In Competition

It's simple-- if a business can no longer afford the cost of doing business (in this case an increase in insurance premiums), it can't afford to be in business. An increase in insurance premiums could likely be absorbed by large carriers, however small carriers and owner/operators could have a tough time making ends meet as a result.

With the economy poised for a possible resurgence in 2015 and the demand for truckers at an all-time high, it seems foolish to price small carriers and owner operators out of business. Doing so would increase the market presence of large carriers-- many of which don't deal with brokered freight.

Stagnant Industry Growth For Small Carriers

As we've made clear, we believe small carriers and owner-operators will be the biggest losers should an increase in required minimum insurance come to fruition. Many would likely be forced to shut down their businesses-- not to mention those who would have to significantly reorganize their companies to absorb increased expenses. In that scenario, how would new small carriers/owner-operators even make it into the market? Insurance premiums are often higher during the first three years of coverage and an increase in premiums would only serve as an additional roadblock for new companies to enter the market.

One Step Forward, Two Steps Back?

We firmly believe the decision to suspend the 34-hour restart rule was the correct one; less government regulation and oversight in the industry gives carriers the ability to operate their businesses as they see fit. As businesses compete and learn from each other's mistakes and successes, the entire industry moves forward. The suspension of the restart rule combined with increased demand and a growing economy bodes well for the transportation industry. However, an increase in required insurance minimums threatens to not only price existing businesses out of the marketplace, but to also prevent new businesses from entering the market.

We will continue to monitor the FMCSA's ANPR process and will bring you more insight as it becomes available.