Recently, The Federal Motor Carrier Safety Administration (FMCSA) reported to Congress that due to the increasing medical costs as well as other factors, the current minimum financial responsibility insurance limits are simply not sufficient to cover certain crashes and other possible losses.
While FMCSA did not propose a specific new minimum limit for the commercial motor vehicle industry, a new proposal with the new limits could be finalized by November.
Insurance brokers have vocalized their congruence with the fact that current minimums are inadequate however have stated that most truckers already purchase more than the legal minimum. Truckers seem to have split opinions on the matter while some believe the raise in minimum limit will have a negative effect on smaller trucking companies and others agree that a higher limit will be beneficial.
According to a study conducted by FMCSA, the amount of calamitous crashes that result in death, injury, or damages that surmount the current minimum limit is extremely low. However, while these kinds of crashes are uncommon, the resulting medical costs from serious bodily injury can be over $1 million and the current minimums do not come close to covering these costs.
As demanded by Congress, FMCSA reported on the pros and cons of raising the insurance minimums. The pros included higher compensation for victims injured in crashes and declines in commercial vehicle accidents. The cons included higher costs for the commercial motor vehicle companies as well as the insurance industry.
Currently, FMCSA governs all registered commercial trucks that carry hazardous material or work interstate. This includes almost 540,000 trucks and 5.6 million drivers.
The present minimum financial responsibility levels as stated by law are,
$1,000,000 for for-hire private carriers of oil and hazardous materials
$5,000,000 for for-hire and private carriers of other hazardous materials
$750,000 for for-hire interstate general freight carriers
$1,500,000 for for-hire passenger carriers of 15 seats or fewer
$300,000 for for-hire general freight carriers of less than 10,000 pounds
$5,000,000 for for-hire passenger carriers with more than 15 seats
Rising medical costs are the primary reason for the insufficiency of the current limits in covering severe crashes. The medical consumer price index (CPI) has been shown to increase at a faster rate (4.9%) annually than the core CPI rate (2.8%) from 1985-2013. Over the last 29 years, the medical CPI has exceeded overall inflation every year except for one. FMCSA reported that if the current general freight coverage limit ($750,000) had been modified for inflation using the core CPI, it would be $1.7 million. In addition, if it was modified for the medical price index it would be an astounding #3.2 million.
The report also stated that insurance premiums for trucking firms have remained the same at approximately $5,000 per truck or decreased in the last 30 years. Due to the fact that there is no fixed pricing and insurers are secretive about their prices for competitive purposes, FMCSA does not have information on what kind of impact the raised limits would have on the insurance premiums for trucking companies.
Other organizations such as the Pacific Institute for Research and Evaluation (PIRE), the American Trucking Association (ATA), and the Alliance for Driver Safety and Security Inc have also researched the topic and have come to very opinions on the matter.
The Trucking Alliance supported higher limits because they found that the current limit of $750,000 is deficient in 42% accidents.
PIRE found that the upper range of liability awards in large commercial motor vehicle crashes that result in death or severe injury is approximately $10 million and suggested a per-crash limit of that amount, indexed for inflation.
The ATA came to a very different conclusion. They took a stand against higher limits after analyzing ISO information from two large truck insurers and found that only 6.5% of motor vehicles weighing over 26,000 pounds have limits less than $1 million while 83% have a limit of $1 million and the last 10.5% have limits over $1 million.
In addition, the ATA also concluded that statistically there is only about a 1.4% chance of a claim surmounting $500,000, a 0.73% chance of a claim exceeding $1 million and a 0.31% possibility of a claim topping $2 million. The unlikelihood of claims this high is another why ATA is against the increasing of limits.
The ISO data revealed that from 2006-2011 there were over 85,500 reported crashes totaling in about $962,000,000 in claims. This makes the average cost per crash $11,229.
The Owner-Operator Independent Drivers Association (OOIDA), an organization for small truckers, is strongly against higher limits due to the fact that 99% of trucking accidents are completely covered under the current limits.
FMCSA has been called out by many organizations including the trade group that currently represents approximately 150,000 small truckers for failing to adequately assess the financial Impacts if raised requirements on small businesses.