How the economy’s affecting transportation claims

The current economic environment is leading to more complex claims handling for the transportation sector, a senior claims adjuster tells Canadian Underwriter.

Canada’s transportation industry is facing financial hardships, including low freight rates, high interest rates and increased expenses. All this affects trucking companies and, in turn, the complexity of claims, says John Seyler, vice president of ClaimsPro’s transportation, equipment and cargo division.

Rising interest rates during COVID-19 and a shortage of trucking equipment meant prices for trucks surged. And then high interest rates to finance those vehicle purchases added to the burden.

With freight rates (the prices requested for the transport of cargo) and trucking prices dropping, a lot of drivers find themselves ‘upside down’ on financing for their equipment, says Seyler, who has more than 30 years in the transportation claims business.

“And so, what happens is that they do have a loss with that equipment, and it makes it very difficult to try and settle because they can’t even recoup what they’ve got invested in their equipment from the claim because of the way the policies are structured,” Seyler says.

Consider a typical highway tractor that a client paid $200,000 for two years ago, which is now worth $110,000 on an actual cash-value basis and still financed for a greater amount than its current value.

“The value of the equipment has dropped because the market has changed for equipment…,” Seyler says.

There’s pressure for trucking rates to go down, but this lags behind the general economic market transportation companies are experiencing, Seyler suggests. “Hence…you’re seeing a lot of companies go into receivership because they…just can’t generate the revenue they need to service the debt they’ve established based on projections that they had two years ago.”

Victimless crime?

Higher rates of fraud and cargo theft in the transport industry means crime investigations need to be more intensive and thorough. Cargo theft, similar to auto theft, has been deemed by some to be a victimless crime.

“It’s not unusual to have $200,000 or $300,000 in product inside a single trailer that’s left dropped in the yard anywhere across Canada and virtually unattended, so it becomes a real target for thieves to take,” Seyler says. “All this risk and burden is put upon the transportation companies who are paying outrageous amounts of money for losses and trying to control them through their risk management and safety [practices].”

Identity theft and falsification of documents to steal loads is also becoming a bigger problem because it appears to be legitimate, Seyler adds. “It’s almost like the trucking version of phishing online.”

Criminals are getting smarter and it’s difficult for adjusters, insurers and law enforcement to keep up with them. This is why a strong client relationship is crucial, Seyler says, adding his firm meets quarterly with a lot of clients to review their claims.

It’s also important to have a specialized transportation adjuster handling these files. Those adjusters will understand things like tow and storage rates, commodities (who to use to dispose of which material) and laws governing the transportation of freight.

“In Canada, the law that governs the transportation of freight is provincially regulated,” Seyler explains. “So, every province has their own Carriage of Goods Act, whereas the U.S. has different legislation for interstate transport versus something that happens within a single state.

“American laws may even apply to claims that occur in Canada and vice versa.”

While an insurer may pay higher rates for a specialist transportation adjuster, their knowledge will be invaluable.

“In the end, you’re going to save costs because an experienced transportation adjuster will handle the claim more efficiently than a general adjuster,” Seyler says. “Insurers may be short-sighted in focusing only on saving money by getting the lowest price and having a complex transportation claim handled by a general auto adjuster, which might end up costing more.”

Feature image by iStock.com/PavelS