Insurance is Required Before Beginning Operations

Rick Malchow, Industry Business Advisor

November 17, 2021

Motor carrier insurance is designed to spread the financial risk across many carriers. If the weight fell only to carriers that had an accident, often those affected by the resulting damage awards could not continue to operate.

Required limits

Beyond a simple best practice, insurance, or financial responsibility as it is referred to in the regulations, is required at the federal and state levels. The current mandated levels of financial responsibility are between $750,000 and $5,000,000. The coverage is typically met through insurance policies. Anytime a CMV is involved in an accident the results can be catastrophic, even more so if the vehicle is transporting passengers or hazardous material.

The required levels are:

  • $300,000 for non-hazardous freight moved in vehicles weighing under 10,001 pounds,
  • $750,000 when operating vehicles over 10,000 pounds,
  • $1,000,000 or $5,000,000 for carriers transporting hazardous materials. The variance depends on the danger level of the commodity and the quantity being transported, and
  • $1,500,000 or $5,000,000 for passenger carriers with the greater amount reserved for larger vehicles capable of transporting more than 15 passengers.

The required levels of bodily injury and property damage (BIPD) coverage has not been raised in many years. Due to the ever-increasing jury awards, often referred to as “nuclear verdicts” the required level of coverage is often considered inadequate. Nuclear verdicts are often in excess of 10 million dollars and have been increasing in regularity in the last 10 years. Prior to 2010, it was rare to see more than 10 verdicts of over 1 million dollars. In the years since, each year has seen in excess of 30 cases per year over 1 million dollars. By necessity, insurance providers pass this increased risk on to the carrier through premium increases.

Proof of Insurance

The FMCSA requires that for-hire property and passenger carriers, Mexican based carriers, and most hazardous material haulers demonstrate financial responsibility to both the public and to the FMCSA directly. Except for Mexican carriers, the FMCSA does not require proof of insurance to be carried in the vehicle, but many states do. In addition, in order to obtain operating authority from a state, the state requires proof of insurance forms to be on file.

Controlling Insurance Costs

Many carriers feel that they have no control over their insurance premiums. This is not the case. The insurers’ underwriters examine the level of risk for each carrier. The underwriter takes many factors into account when determining the risk levels. These include, not surprisingly, the driver pool, the type of operation, the number of previous accidents, etc. But that is not all the underwriter reviews, they also examine the level of compliance with the safety regulations as measured by roadside inspectionsaudits, and compliance reviews. They are keenly interested in the carrier’s compliance trend lines in addition to if and how the carrier uses technology. The technology may include ELD data, camera technology, hard breaking, lane deviations, and similar data. In this area, no news is not good news. Without good collaborating data to the carrier’s safety program, the underwriter assumes that either the technology is not in place – or if it is and the data is not provided – that the data paints a high-risk picture.

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