$4,923,154 Minimum Financial Responsibility Limit Proposed

7/16/2019 – A bill (H.R.3781 ) has been introduced in the House which seeks to increase the minimum levels of financial responsibility by 556% for transporting property, and would index future increases to changes in inflation relating to medical care.

At a press conference in Washington D.C., Representative Jesus Garcia (D-Ill) proclaimed “we’ve seen how victims, their families, hospitals, and our strained social safety net are forced to foot the bill for irresponsible driving.” Garcia was joined by members of the Truck Safety Coalition and accident victims to announce the bill and to introduce the Safe Roads Act. The legislation would require Automatic Emergency Braking technology as standard features on commercial vehicles.

This is not the first go-around for increasing minimum insurance limits. In April of 2014, the FMCSA examined the appropriateness of the current financial responsibility requirements. The agency concluded that catastrophic crashes involving CMVs are relatively rare occurrences. When catastrophic and severe/critical injury crashes do occur, the costs of resulting property damage, injuries, and fatalities, can far exceed the minimum levels of financial responsibility. Based on that research, the FMCSA announced a Advance Notice of Proposed Rulemaking (ANPRM). After a public comment period and hearing from its own Advisory panel (Motor Carrier Safety Advisory Committee), in November 2014 it withdrew its ANPRM due to insufficient data or information to support an increase.

The newly proposed legislation does not point to any new data to further support its cause. According to Section 2 of the legislation’s text, it finds that increasing financial responsibility is to encourage the carriers to engage in practices and procedures that will enhance the safety of their equipment so as to afford the best protection to the public. Accordingly, it also states that the $750,000 minimum amount set in 1980 equates to $4,923,154 in today’s dollars.

On this subject, the American Trucking Association previously revealed data (through 2012) obtained from the Insurance Services Office (ISO), under nondisclosure agreements, from two of the 10 largest trucking insurers covering all their large truck (over 26,000 lbs) policies. That data showed that only 6.5% of insurance policies for those trucks are written at limits under $1 million, while 83% are written at $1 million, and the remaining 10.5% are written over $1 million. Analyzing the data further, it was found that there is a 1.40% chance of a claim exceeding $500,000, a 0.73% chance of a claim exceeding $1 million, and a 0.31% chance of a claim exceeding $2 million.

EQUIPMENT VALUES

Another welcomed alert from your claims professionals

According to our claims experts, a growing number of claims are turning up with an equipment’s stated value either over/under estimated compared to the current local market price.

What this means is that when you insure your truck/trailer for physical damage coverage, you are asked to provide a value for that piece of equipment (stated value). The insurance company does not determine that value, you do. However, if/when you have a need to use this coverage, this value is the maximum amount that the equipment is covered for in a total loss, but not necessarily the amount that will be paid out.

An experienced claims adjuster will take in consideration a number of factors to determine the value of a vehicle and the first on that list is what other equipment like it is selling for on the local open market. If you think your truck is worth $75,000 and list that amount as the stated value, but similar trucks are selling on the market for $62,000… you’re value is a bit high. Conversely, if your truck’s stated value is $55,000, but similar trucks are selling on the market for $62,000… you’re value is a bit low. Consider that a physical damage policy rate can be around 4% of the stated value (this rate varies). The difference between $75,000 and $62,000 is $13,000. $13,000 multiplied by a 4% rate is $520 extra (per truck) that you paid for that policy. The difference between $62,000 and $55,000 is $7,000 that will not be paid to you upon a total loss. If your value was at $62,000 your rate would have been $280 more in this instance. (Above figures are intended for illustration purposes only).
We understand that there might be some upgrades an extras that you feel make it worth more, so if you do have those upgrades maintain receipts for those items e.g., rims, new paint, specials kits and engines, etc. Regular maintenance does not increase the market value. So, before you give a stated value for your equipment, check your local markets to determine the value of the unit. The market value should be based on the zip code in which the vehicle is registered.

Your physical damage policy is normally an annual policy which means it cancels and renews on an annual basis. Your stated value should do the same. Make sure to make appropriate adjustments to the stated value each policy renewal to ensure the appropriate stated value.