Post-Montgomery, focus grows on fate of 3PL insurance premiums

In the wake of the decision in Montgomery vs. Caribe Transport II, which opens the door to far greater liability or negligence exposure to brokerages, one of the first questions being debated is the impact on the insurance bill a 3PL can now expect to pay.

That uncertainty was driven home rapidly with a brief report released Monday by the transportation analysis team at TD Cowen led by Jason Seidl, who had conducted a phone roundtable with “KOLs,” key opinion leaders, on where insurance might be headed in the wake of the Supreme Court decision last week.

Seidl’s report based on the conversation led to several conclusions, all of them impactful. window. googletag = window. googletag || {cmd: []}; googletag. cmd. push(function() {googletag. defineSlot('/21776187881/FW-Responsive-Main_Content-Slot1', [[300, 100], [320, 50], [728, 90], [468, 60]], 'div-gpt-ad-1709668545404-0'). defineSizeMapping(gptSizeMaps.

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display('div-gpt-ad-1709668545404-0'); }); First, the size of insurance premiums paid by brokers and carriers–with the latter group now paying far more than the 3PLs–”should narrow significantly over the coming years between asset-based carriers and brokers,” the report said.

Big gap now in premiums That gap in insurance costs between an asset-based carrier and a 3PL, according to the report, was put at about 90 percentage points by the TD Cowen panel. For every $1 spent by a carrier, the 3PL spends about 10 cents. There was no firm estimate given in the report about how much the gap might close.

But TD Cown noted that “these inflationary headwinds in insurance are coming at a time when commercial auto price increases are still nominally high, albeit off peak growth rates. We believe this will eventually restrict brokers’ ability to gain share on price and likely raise the floor on trucking rates.”

Second, a percentage amount estimated by TD Cowen at mid- to high- single digits of trucking capacity “may be removed from the market as brokers look to distance themselves from potential liability by removing them from their platforms.”

The report discusses what it called “conditional” rated carriers, which it defined as “those that have unresolved safety issues that have been reported to the Federal Motor Carrier Safety Administration (FMCSA).” One of the TD Cowen panelists said about 6-7% of trucking capacity is made up of conditional carriers. Numbers out there in the discussion window.

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pubads(). collapseEmptyDivs(); googletag. enableServices(); }); googletag. cmd. push(function() {googletag. display('div-gpt-ad-1665767553440-0'); }); A few numbers have begun to leak out into the market on what the cost increases might be.

Tyler Biddle, an independent attorney specializing in logistics, said in his first post-Montgomery discussions, “I’ve heard some instances of people who are in renewals and the underwriters are saying, ‘hold up, just give us a minute’” as they try to figure out the landscape.

But in one specific instance, Biddle said he has heard from an associate at a “good sized brokerage firm” that renewal discussions are talking about an increase of 300%–or as the industry refers to it, 3X–in current insurance rates.

Chris Burroughs, the president of the Transportation Intermediaries Association–which held an off-the-record call with its members Monday to brief them on a post-Montgomery world–said a rough estimate prevalent in the industry is that insurance costs for a brokerage have tended to be in the range of 1% to 3% of revenue.

(Biddle said insurance rate pressures may lead to more companies tying their insurance prices to a number tied to miles driven rather than revenue, which could be seen as one way of mitigating higher premiums). The number Burroughs said he is hearing so far is that insurance costs might go up 5X, which is more than the estimate of Biddle’s associate. window.

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pubads(). collapseEmptyDivs(); googletag. enableServices(); }); googletag. cmd. push(function() {googletag. display('div-gpt-ad-1709668086344-0'); }); The TD Cowen report did not weigh on the potential size of an increase beyond that narrowing of the gap between brok