According to the American Trucking Association (ATA), there is a real and profound truck driver shortage happening right now in the United States, especially in the long-distance sector. However, the U.S. Bureau of Labor Statistics (BLS) has questioned the severity of the shortage. So, who’s right? ATA or BLS?
Earlier this year, Bibby Financial Services of Georgia discussed its findings after surveying 250 trucking businesses with fleets between 1 and 100 trucks. The No. 1 concern revealed in the survey was driver recruitment and retention. There are a number of contributing factors. The industry is booming and there’s an increased demand for more experienced drivers. Younger generations are choosing other careers. Older, experienced drivers are retiring. For all of these reasons, the job market for experienced drivers is becoming much more competitive.
“There is no ending in sight for the driver shortage,” commented Mary Ann Hudson, EVP of Bibby Transportation Finance. “Competition is intensifying,” Hudson said the shortage is a record dearth for the industry, with 66% of firms telling Bibby that they have trouble finding drivers.
So, what’s the answer? Is this driver shortage real or not? If so, what’s the potential impact? And what can trucking businesses do about it?
The answer is that driver shortage does represent a real business risk to trucking companies. And with driverless vehicle technology not yet ready for broad market adoption, a driver shortage can have major implications for the successful operation of a trucking business. And earnings are at risk if there aren’t enough drivers to meet demand. Planning for and managing potential losses are critical to the integrity of the trucking company operation and its balance sheet.
Captive Insurance for the Trucking Industry
The captive insurance industry has a solution for trucking companies, which can supplement commercial insurance coverages. A captive insurance company can insure an affiliated business from the direct risk of a driver shortage.
Single Parent Captives are a popular structure. They can be owned by individual trucking companies to assume a manageable portion of risks. Single-parent captives receive premiums for underwriting the risks they insure.
By forming a captive insurance company, business owners in the trucking industry can write customized coverages not generally covered by the conventional markets and can comprehensively protect their business against loss. Captives are an alternative risk management structure that should supplement conventional insurance--not replace it.
Captive insurance policies can supplement mission-critical commercial policies such as auto liability, physical damage, cargo, workers’ compensation, and property insurance. Captive and conventional commercial policies can be jointly underwritten to make certain that certificates of insurance will be maintained.
Additional “sample” risk coverages that can be underwritten by captive insurance company include:
- Loss of a Major Customer
- Loss of a Major B2B Relationship (e.g., a preferred vendor relationship with a cab or trailer manufacturer)
- Physical Damage to the Fleet
- Cargo Loss
- Storm or Hurricane Damage to a Terminal
- Extraordinary Equipment Breakdown and Engine Repair
- Commercial General Liability
- Pollution Liability
- Weather-related Business Interruption
- Cyber Risks
- Unexpected Fuel Cost Hikes
- Driver Shortage
Financial and Other Benefits to a Single Parent Captive:
- IRC 831(a) and 831(b) captives are both tax-advantaged, efficient risk management tools. Premiums paid to a captive are business deductions. Single-parent captives electing 831(b) status offer a 0% federal income tax paid on the captive’s underwriting profits, up to $2.3M annually.
- Captive structures provide access to reinsurance markets.
- Captive structures allow for return on investable captive assets. These additional funds build surplus and reserves to pay future losses and lower premiums to the insured.
- Captives provide owner opportunity for distributions, such as loans and dividends from undistributed earned surplus.
Good Captive Prospects Include:
Financially sound companies with a long-term, strategic plan for risk management control that:
- Can afford a minimum $250K capital investment for an 831(b) captive, plus start-up costs,
- Have significant insurance premiums for workers’ compensation, general liability, property, and auto coverages,
- Above-average loss history,
- Good risk loss control program in place.
Another popular captive structure in the trucking industry is the Group Captive.
Group captives insure the risks of multiple, non-affiliated businesses where all participating group members share in the insurable risks of all members in the group. Group captives tend to offer lower premiums due to a lower expense load when compared to commercial insurers.
Group captives are typically more suitable to trucking operators that want to participate in a portion of the underwriting profits and risks of specific group coverages, but are not large enough to form a single-parent captive. Group captives provide group purchasing power which may result in savings for each individual group member.
Group captives can provide mission-critical insurance such as auto liability, auto physical damage, cargo, workers’ compensation, and property insurance that typically represent a reduction in risk management costs and a savings to each group participant.
Financial and Other Benefits to a Group Captive:
- Group captives are tax-advantaged, efficient 831(a) structures as are commercial insurers. Premiums paid to group captives are a business deduction.
- Group captive structures provide direct access to reinsurance markets.
- Group captive structures allow for return on investable captive assets. These additional funds build surplus and reserves to pay future losses and lower premiums to the insured.
Good Group Captive Prospects Include:
- Financially sound companies with long-term, strategic plans for risk management control able to afford pro-rata share of group capital investment for 831(a) captive, plus start-up costs.
- Above-average loss history.
Here’s a detailed explanation of how it works:
Trucking companies pay premiums to the captive insurance company just as they would to a commercial insurance company. Funds accumulate inside the captive to be used to fund losses. Reserves and surplus held by the captive accrue in a tax-advantaged environment.
Captive structures allow owners to capture a portion of premiums currently paid to outside, third-party insurers for risk protection by selectively retaining certain risks or layers of risk which the owner prefers to self-insure.
Bottom line: The driver shortage issues are real. Captive insurance for trucking fleet operators is a powerful supplement to commercial insurance alone. Savvy business owners in trucking who form their own captive insurance company can count on a new level of risk management as they combat risk in such a competitive industry.