California’s Passage of AB5 Hurts Trucking Insurance

When it comes to insurance for autos of any kind, California isn’t exactly the friendliest place in the U.S. Personal lines insurers have been in a battle of wills with the California Department of Insurance over the need for rate increases.

As you know, inflation and high claims costs are driving huge losses.

Now the truck drivers in California are being battered by the passage — and signing into law — of AB5. The bill is so problematic that many truckers are considering parking their rigs and not working at all.

AB5 says owner-operators of big trucks must be considered employees of the businesses hiring them to haul goods. Milepost Insurance Vice President Joe Nibley said that’s bad news for their businesses and for consumers and other businesses that depend upon the industry for goods.

“Even if this type of contractual work can persist in some form within California, finding insurance to back it up will be very costly and difficult,” Nibley told Insurance Business America in an interview. He said it’s based on a decision by the California Supreme Court that said truckers doing work for Dynamex were wrongfully seen as contract workers.

While making sure those drivers are employees was the correct decision for Dynamex drivers, it’s not the best decision for other owner-operators of big rig trucks in California. Many do contract work through motor carrier businesses who contract with owner-operators to haul products for businesses that need such services.

“If it was more advantageous to have these owner-operators as employees, this would have been done long ago,” Nibley said and noted that motor carriers hiring independent truckers will now have to treat them like employees.

“There’s going to be a big change in the insurance that they’re going to need to carry,” he pointed out. “They’re going to need to carry workers compensation insurance. While that coverage is available, it might be one of the things that would probably deter that carrier from wanting to bring on the employees is the cost of the insurance.”

This is also bad news for consumers.

“When you are forced into a situation where in order to keep the same number of trucks and drivers, you must now have employees instead of owner operators, which means that your cost per truck or cost per person that works in your business is now higher,” Nibley said.

And here are the options for owner-operator truckers:

  • They can bag it and stop working in the trucking industry
  • To be able to work as independent contractors, they could move to a different state
  • Or they can start their own motor-carrier business

Nibley said the third option is probably best, however, it’s very expensive to start that kind of business.

“The data is pretty clear that a brand-new trucker or brand-new motor carrier in their first year is going to have a much higher loss expectancy than a trucker who has been in business for at least one year,” he told Insurance Business America. “The risks associated with trucking in the first year are such that a lot of carriers just say no, you need to have X number of years in business as your own motor carrier authority before we’ll even give you a quote.”

Even if they did start such a company, he said it’s an expensive proposition in a dicey economy. Not many are going to want to take that risk.

And neither are insurers.

Source link: Insurance Business America —

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