(October 2022)
Underwriting the Insurance Services Office (ISO) Motor Carrier Coverage Form involves examining several different areas. Some important ones are the named insured, eligibility, operations, covered autos, management, vehicle information, driver information, loss experience, restricting, broadening, clarifying or tailoring coverage, deductibles, and limits of insurance. Motor carrier operations present significant auto liability and physical damage loss exposures. Evaluating the vehicles involved and the drivers who operate them is critical in arranging the proper insurance coverage.
Insurance policies are designed to protect the named insured's assets. This means that in order to underwrite the exposure, there must be an understanding of who is being protected. There can be multiple named insureds. Each named insured must be individually underwritten, and there must be an explanation as to how each of the named insureds are related to the others. The first named insured has certain rights and responsibilities related to premium and notices but being first does not grant any differences in coverage.
If the named insured is an individual, CA 99 17–Individual Named Insured must be attached. Because this results in expanding coverage to include family members, the personal auto exposures must be underwritten as well as the commercial ones.
Related Article: CA 99 17–Individual Named Insured
Motor carriers are persons or organizations that transport goods, materials, or commodities by vehicles for others. The transport must be for the furtherance of a commercial operation. Motor carriers are not required to use the CA 00 20–Motor Carrier Coverage Form. They can use CA 00 01–Business Auto Coverage and request that CA 23 30–Motor Carrier Endorsement be attached to cover the motor carrier Who Is an Insured and Trailer Interchange Coverage sections.
Related Articles:
CA 00 01–Business Auto Coverage Form Analysis
CA 23 30–Motor Carrier Endorsement
The named insured’s customers, operations, and services provided determine the types of exposures to expect. The types of covered autos involved should match the operations conducted and services performed.
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Example: Max’s Freight application states that all vehicles travel within a 50-mile radius. The garaging location is more than 100 miles from the state line. The previous policy included interstate endorsements, and the agent asks that this policy be issued with the same endorsements. It is important to determine why interstate endorsements are required as the application and endorsement discrepancy indicates a need to verify Max’s operating area. |
Related Court Case: Did Endorsement Cover Intrastate Commerce?
Management establishes the safety standards. Automobile loss ratios deteriorate if management does not proactively address maintenance issues and driver responsibilities. Drug testing programs generate positive results only when written procedures, standards, and post-testing actions are in place. Such programs are ineffective if management fails to follow through in a consistent manner. Periodic ordering and review of Motor Vehicle Reports (MVRs) on all regular drivers is equally important. Procedures that explain the consequences and actions of new infractions that appear on them should be in place and followed consistently. All vehicles should receive regularly scheduled preventive maintenance that is documented, with copies kept in a central office.
Management should have guidelines on the personal use of company vehicles. When family members are permitted to use them, motor vehicle records on each potential driver must also be obtained and evaluated. In addition, other information, such as each driver's level of training, may be needed, depending on the frequency, type, and radius of operations. Any driver training that the named insured offers should also be evaluated.
Formal safety programs should be evaluated to determine if they are comprehensive and properly address the operation involved. Positive incentives should be offered to encourage safe driving, such as bonuses for good driving and for loss-free or accident-free drivers. Mandatory training programs should be established and administered to drivers who hold certain types of licenses or handle dangerous cargo. A tracking system should be in place to check and verify that all mandatory licenses are current.
The Federal Department of Transportation has established rules that motor carriers must comply with if they want to stay in business. These guidelines are also important to underwriters because they are designed to keep the drivers and others on the road safe. An owner should be in full compliance with the rules and requirements and have procedures in place to monitor continued compliance.
Related Articles:
Department of Transportation (DOT) Alcohol and Drug Testing Rules Overview
Federal Motor Carrier Safety Administration (FMCSA) Motor Carrier Requirements and Endorsements
The driver is the critical factor in auto underwriting. His or her ability to handle any covered vehicle is the key factor in determining the likelihood of an accident, regardless of the vehicle's equipment or maintenance. The business should have a current drivers list that is updated on a continuous basis. It should include the name, date of birth, driver's license number, vehicles driven, and frequency of operation. The list should be used to order periodic motor vehicle records for each driver. Potential new hires who will be driving company owned vehicles should be required to meet established minimum standards of acceptability prior to hire.
Other issues to consider include adequacy of driver training, formal safety program, special and commercial drivers licenses (CDLs), maintaining of driver logs, and mandatory random drug testing. Drivers must comply with all DOT rules and regulations regarding the logging of hours. New electronic logging should make such records more accurate.
Some insurance companies may require that they be allowed to review every driver before he or she begins driving for the insured.
Related Court Case: Accident Caused By Driver Not Reported To Insurer Not Covered
Properly underwriting motor carrier coverage requires careful consideration of these factors:
There should be regular and scheduled preventive maintenance for all vehicles that is documented and kept in a centralized location. Information regarding when vehicles are replaced can also be important for certain fleets.
Loss experience over a period of time is critically important. It should include the date, time of day, driver, vehicle involved, and type or description of each accident or loss in addition to the amount of loss and whether it is open, closed, reserved or in suit. Loss frequency predicts the possibility of a severe loss occurring in the future. The named insured should use controls to minimize frequency. Drivers should be disciplined when involved in minor at-fault accidents. Any large losses should be, identified, explained and remedial actions taken as a result fully described.
Because of the broad nature of the ISO Motor Carrier Coverage Form, underwriting considerations must include determining if a specific insured needs every coverage available or provided. If not, some can be deleted by endorsement for a premium credit. Some insurance companies require other exclusions to satisfy their underwriting requirements. In some cases, the basic coverages provided may not be broad enough, and endorsements are needed to broaden coverage or delete exclusions. These may or may not be subject to additional or return premiums and are at the insurance company's discretion. Another category of available endorsements clarifies and restates a coverage form condition or provision that may apply to an insured.
Related Article: ISO Motor Carrier Coverage Form Available Endorsements and Their Uses
Deductibles are another important underwriting consideration and are available for liability coverage, physical damage coverage, or both. Different physical damage deductibles are available by coverage or by vehicle.
Deductibles may be used to reduce premium costs. Credits are given based on the size and type of deductible. The insured must evaluate whether such premium reductions make sense relative to the larger portion of losses it retains. In some cases, the insured does not have a choice if the insurance company insists on higher deductibles to avoid or reduce the effects of loss frequency.
The most the insurance company pays for the total of all liability damages is the limit of insurance on the declarations, including any covered pollution cost or expense that results from any one covered accident. This is regardless of the number of insureds, autos covered, autos involved in an accident, premium paid, or number of claims made. As a result, the limit should be sufficiently high to protect the named insured’s assets, but they are not always only the named insured's choice. Governmental regulatory bodies establish minimum acceptable limits. A business customer may require certain minimum limits as a precondition to a motor carrier coming on its premises. Many larger fleets must purchase umbrella coverage in order to meet their total limits demands.
Related Article: ISO Commercial Liability Umbrella Coverage Form Overview
Auto lienholders may require minimum physical damage limits and maximum deductibles.
Underwriters must consider the catastrophe exposure of multiple units being at the same location and subject to the same catastrophe. This is particularly important in coastal states that are subject to windstorms. A plan for evacuating vehicles should be in place. An inventory of power units and trailers should be maintained that shows where all units are at a particular time.