You probably didn’t realize it, but preparations to drop a financial MOAB on the US was introduced on July 16, 2019 by US House Representative “Chuy” Garcia D-IL-4 in the introduction of a bill to increase the limit on commercial insurance per the Motor Carrier Act of 1980. That limit stands at $750,000 combined single limit (CSL) for bodily injury and property damage in an accident. Most carriers have limits of $1 million CSL in coverage, as opposed to the $750,000 CSL.
The proposed increase would take the limit to just under $5 million CSL.
Hmmm. Seems a tad aggressive.
So, what is the logic behind it? According to Rep. Garcia and the bills co-sponsor, Rep. Matt Cartwright D-PA-8, there is an imbalance of the limits in relation to what the rise in medical costs have been. Is that correct? Most likely so. Does that justify an increase in limit coverage across the board in an industry that moves the US around the clock? That would be a no, as in hell no.
The Sponsors of HB3781
Matt Cartwright appears to be the genesis of the bill with the draft of House Resolution 3383, which became 3781. He had versions of this he sent to the House Committee on Transportation & Infrastructure in 2015 and 2013 as well that died in committee. In research of his background, he practiced law with his wife for 25 years before seeking Congress and personal injury was an area of practice. From 2009 to 2012, he was on the Board of Governors for the American Association for Justice, formerly known as the Association of Trial Lawyers of America. As such, I think there is little doubt that this bill has its roots in the practice of personal injury. Does that make Cartwright an evil man? No, but he may have tunnel vision on the bill and not be aware or recognize the negative impact it can have to the US economy.
Chuy Garcia sits on the House Committee for Transportation & Infrastructure and on its Subcommittee for Highways & Transit. Cartwright sent the bill to him to introduce into the Subcommittee. Garcia’s father was part of the post WW II bracero program as a farm laborer. In 1965, he was able to move here as a permanent resident. His background shows more of care of immigrants, with a focus on the Latino community. While he definitely in the progressive mold, this bill would appear out of his focus. I can only think that he has seen some crashes where there was insufficient insurance to care for victims in crashes. However, he was a backer of Bernie Sanders and his platform in 2016, so he may harbor a view of higher coverage for all regardless of cost. His background does not lend to a large view of the potential impact of the bill.
Is this really feasible?
You know, I may “need” 5 million dollars of life insurance. I may be able only to afford $500,000 due to the cost. I don’t think that Reps Garcia and Cartwright, while solid on the increases in medical costs in logic, understand you cannot insure ALL risk. That is the real issue here.
For folks in trucking, they know what’s at stake – massive increases in their truck insurance premiums. If the “average” truck liability for $1M CSL is from $6000 (large fleets and perfect in every way) to $16000, the thought might be that their insurance would go up by 500%. That is the percent increase to go from 1M to 5M in coverage. However, it would not be that severe. Rate banding, discounts, and other rabbits from the hat would offset some coverage increase shock, but it’s fair to say that premium would at least double. So, the outfits paying say, $12000 a truck go to $24000 a truck. Hmm.
For some perspective, let’s say your auto, home, and health insurance double next week because a law says you need higher limits of coverage is passed. Would that impact your pocket book a smidge? Have we not been here already with the Affordable Care Act (Barry Care) and seen what a disaster that is for the feds to play in insurance?
The reason I used MOAB in the title (Mother of all Bombs) is that this bill has far reaching scenarios or blast radius as I like to call it. I will go through them so you get the picture, because it touches everyone.
- You saw my conservative projection on the rate increase for trucking companies. Most trucking is NOT done by the Big Guys, rather 80 to 85% are smaller firms, so the increase will whack them the hardest. You double their premiums and they have one of 2 choices – pass on the cost to shippers who pass on the costs in higher goods to YOU John & Jane Citizen OR they close their doors. Shippers won’t take the increases – at first, so I predict a mass closing of trucking companies. They simply will not be able to get the freight at the price that will make the increase feasible.
- If a mass of trucking companies close, that will ripple through the economy. Class 8 truck values will drop off the cliff due to repossessions as the trucks for small firms are not operating. Financial lending/leasing companies take a big ole hit. Wait, there’s more! Those people who just went under will lose their personal cars, homes, etc. Remember 2008?
- Capacity for the shipping of goods shrinks. Now, could the Big Guys absorb some of the little guys going under? Yes, but not all and they are going to be impacted as well and I will get to that. So, less trucks to move goods means it costs more to move the goods and this time the shippers will have to choice but to take the cost increase. Of course, they pass it on to the consumers.
- Big Guys trucking companies will feel the changes as well. Even if they are on the perfect end of the rate scale, doubling of premium is doubling of premium. IF they self-insure, they still have to post bonds with the FMCSA showing financial responsibility and that is going to cost more as well. These Guys have contracts where they can pass costs to shippers and they will. Then the shippers pass costs back to John and Jane Citizen in higher prices for goods.
In every possible scenario, this bill has devastating impact to trucking and consumers will ultimately pay more for goods. There is zero chance to avoid it if this bill becomes law.
The Insurance Companies Weigh In
One item this bill does not consider is market capacity for this type increase of coverage. Truck insurance is under tremendous pressure to stabilize and return to profitability. Increases in frequency and severity are driving up premiums. Lawsuit financing has changed the litigation game for insurance carriers now in longer and more costly settlements. Nuclear lawsuits such as the Werner Case have insurance companies already considering exiting the market. Passing legislation requiring them to bite off more exposure could have unintended consequences of insurance companies exiting the market, reducing truck insurance capacity and driving premiums up even more. Yikes!
Another Potential Unintended Consequence
I keep the pulse around the nation on potential bills like this. I already know of 4 Democrat controlled states that have seen this bill and are considering something similar to personal auto insurance. That little comparison thought I did earlier was grounded in possibility. Most state mandatory limits for auto insurance are very low and the same argument for increasing limits could be made. So, the feds messed up health insurance. This example could get the ball rolling for states to mess up your auto insurance.
The root cause for a bill like this is not just an increase in medical costs. As stated, the frequency of accidents with semis is increasing. Not a day goes by where some form of negative press is out there on an accident. That is being caused by a number of factors, with (in my opinion) the biggest being an influx of new drivers who get minimal training before being issued a CDL to drive an 80000 lb rig PLUS the freight way too soon. To correct this and reduce insurance payout for frivolous suits I would suggest the following:
- Increase in hours of training – substantially. Fed funds already go to schools to train. While I hate federal spending, due to the importance to the US trucking provides in moving goods, we should consider paid training for those truly committed to becoming drivers.
- Increase in driver pay and benefits. If you know what these folks do and the profit margin right now they deal with, it’s a short discussion.
- Tort Reform – I am NOT talking about ending insurance for legit claims. What I am talking about is regulating the loan shark world of lawsuit financing as well as limits to what safety violations pertaining to accidents could and could not be used for payments. The Werner Verdict is prime example.
- Roll back the ELD regs to common sense. While we hear its coming, this has lead directly to more accidents and higher insurance for trucking.
How to get involved
You can reach Rep Chuy Garcia at his website https://chuygarcia.house.gov/. He has multiple options on contact.
Rep Mark Cartwright’s website is https://cartwright.house.gov/. He also has multiple options for contact.
The House Committee on Transportation & Infrastructure Subcommittee for Highways & Transit is: https://transportation.house.gov/subcommittees/highways-and-transit-116th-congress All the members for this Subcommittee, who will vote to get it out to the floor for vote, are listed. Please contact them and stop this bill now.
A Bad Bill with Good Intentions
HB 3781 has good intentions.
Think we have all heard the road to Hell is paved with good intentions.