In future years, when historians reflect on the year 2001, September 11th will be remembered as a date which profoundly changed the way Americans performed their routine personal and business activities. Before that date, commerce was conducted blissfully, with scant regard for security concerns. The attacks exposed the vulnerability inherent in a free, open society and, as a result, the nation's commercial activities became increasingly subject to new security restrictions. The effect of September 11th on the operations and profitability of many industries will be felt for years to come. Among the industries most affected are transportation and insurance.

Before the attacks, there were signs that the motor carrier industry had hit bottom and was beginning a long, slow road to recovery. Freight volume had begun to climb, interest rates had fallen, and a record number of trucking companies had ceased operations, resulting in reduced capacity and less competition for the remaining carriers. To be sure, fuel prices remained high, labor cost had not decreased, and the cost of truck insurance was steadily increasing.

Many economic indicators fell after the attack, reflecting the changed mood of the country, which altered consumer buying habits and increased fears about the depth and length of the recession which is now believed to have begun in March 2001. Trucking companies faced new, unanticipated burdens and costs of doing business. Long lines of trucks were common sights at port areas and border crossings (the American Trucking Associations has calculated that the cost of a driver sitting behind the wheel of a truck that goes nowhere is $72 an hour). Increased costs for motor carriers included hiring more security personnel, installing lighting and electronic fences, and buying upgraded communication equipment. Hazardous materials haulers faced a dizzying array of new security requirements.

It is too soon to be able to determine whether all of the components of the current heightened state of security will become a permanent part of American life. It is clear, however, that many security related initiatives have been set in motion by both government and private entities and that America is getting used to having security concerns intrude upon daily activities. While the added security measures will undoubtedly have an impact on the bottom line of motor carriers, of greater importance this year will be the extent of any economic recovery that occurs. Should the economy resume the robust growth that marked much of the past decade, the trucking industry will be able to take advantage of the current low fuel prices and higher unemployment numbers (which mitigates the driver shortage) in order to shake off its recent malaise. Without a revitalized economy, excess capacity, a weak used equipment market (which prevents carriers from selling older and unneeded equipment for profit), and escalating insurance premiums could result in the demise of many more trucking companies.

The Federal Motor Carrier Safety Administration now has its first permanent administrator. In October, Joseph M. Clapp, former chairman of the trucking conglomerate Roadway Services, was sworn in to head the agency. He reports to the new Secretary of Transportation, Norman Y. Mineta, the new administration's only Democrat cabinet member.

During 2001, FMCSA had thrust upon it two major issues which were hardly on its agenda when the year began: NAFTA and security. Early in the year the new administration indicated that it would seek to reverse the moratorium keeping Mexican trucks from traveling through the U.S. that had been imposed by President Clinton. A target date of January 1, 2002 was announced for the border opening, but House and Senate Appropriations Committees each passed a bill that would have had the effect of keeping the border closed. However, in December the White House and Congress reached a compromise that is expected to result in Mexican truckers being able to haul freight between Mexico and all points within the U.S. during the second half of this year. The statute signed by President Bush provides for detailed steps to be taken by the USDOT in order to ascertain the safety of Mexican carriers, including increased inspections of both vehicles and drivers, and enhanced border crossing facilities. Mexican truckers must buy insurance from an "insurance company licensed in the United States"; it is not clear whether this language will be interpreted to include excess and surplus lines insurers, as well as regularly licensed insurers.

Since September 11th, trucking has been targeted by government officials as an industry in need of improved security. Several bills to address motor carrier security have already been enacted, and others are awaiting congressional action. A bill signed by the President on October 26th, requires truck drivers who apply for or seek to renew commercial driver license endorsements to haul hazardous material to undergo background checks including a check of domestic and international police records and verification of immigration status. FMCSA has begun to draft regulations needed to implement this new statute. Proposed legislation would give USDOT inspectors greater authority to search and seize hazardous materials being shipped. Cargo theft, a crime often ignored by law enforcement agencies, is receiving new attention in the wake of the attacks. A bill recently passed by the Senate and awaiting House action seeks to address port security and cargo theft issues, providing for increased fines and criminal penalties for cargo theft, increased funding for local, state and federal multi-jurisdictional task forces and access by motor carrier management to nationwide criminal background data bases.

If FMCSA gets its way, commercial driver license requirements will be much more stringent. Early last year it instituted a rulemaking designed to force states to use a truck driver's own personal driving violations as part of their issuance, revocation, cancellation or suspension proceedings. Most states do not currently use this information; a final ruling by the FMCSA is expected shortly. FMCSA also has plans to add a biometric identifier, such as fingerprints, to the CDL. It hopes to tighten federal oversight of state CDL programs and expects to propose that driver medical certifications be linked to the CDL process. On August 1, 2001, new USDOT drug and alcohol testing rules designed to deter cheating and to protect the rights of tested workers went into effect. FMCSA has also begun a rulemaking concerning whether medical review officers should report positive drug test results for CDL drivers to the state that issued the license.

Not all the government's attention has been directed to the issues of NAFTA and security. The U.S. General Accounting office issued a report criticizing USDOT's oversight of the household goods moving industry. It found that the number of complaints regarding household goods carriers has doubled since the demise of the ICC, that USDOT has taken few enforcement actions against these carriers and that the lack of government action has allowed unscrupulous carriers to flourish and take advantage of consumers. A subsequent House of Representatives hearing elicited a FMCSA pledge to devote more resources to addressing these problems. Also with regard to household goods carriers, the Surface Transportation Board recently issued a decision granting the request of household goods carriers to limit the valuation options provided to consumers. Subject to carrier compliance with the preconditions of the Board, consumers will be given an option to elect to value goods at either 60 cents per lb. or replacement value. Underwriters should take note that the new options may not conform to the liability coverage provided, which is often limited to actual cash value.

The outlook for FMCSA's controversial hours of service proposal continues to be muddled. Although the congressionally mandated one-year delay in considering the issue has expired, the new FMCSA leadership has shown little inclination to move the politically-charged matter to the front burner. Another controversial issue, the U.S. Department of Labor's proposed ergonomics regulations, also appears to be delayed indefinitely after Congress voted to reject new rules issued in the waning days of the Clinton administration.

In 2001, the USDOT announced the start of a two-year study into the causes of crashes involving large trucks. In another matter, comments were received during the year on a proposed FMCSA pilot program seeking to train 19 and 20-year olds to drive heavy trucks. A decision is pending; indications are that most of the filed comments opposed the proposal.

FMCSA will spend the early part of this year developing regulations to implement NAFTA and the opening of the border - until they are issued in final form, the border remains closed. It is expected that during the year FMCSA will finally get around to its long-delayed Unified Carrier Registration rule-making. While the immediate impetus is the necessity of providing for the registration of Mexican carriers, the proposed rules, when they are eventually issued, are expected to cover such matters as the ending of the registration of trucking companies as common carriers or contact carriers, the elimination of "docket" ("MC") numbers in favor of the "USDOT" numbers, the continuation of the cargo insurance requirement with perhaps its expansion to all for-hire motor carriers, and the termination of the Single State Registration System. By the end of this year, FMCSA should have completed its initial updating of the descriptive motor carrier information contained in its SAFER database. Its Form MCS-150 will then have been mailed to all truckers; in the future, these carriers will be required to re-file this form every two years. However, the number of FMCSA's safety compliance reviews, from which SAFER's safety ratings are derived, have been substantially reduced as inspectors have been instructed to spend much of their time on briefing hazardous materials haulers concerning security concerns.

Trucking industry executives are facing the onset of 2002 with a pronounced lack of optimism. As they struggle to contain increasingly higher costs of doing business in the face of the current recession, there are very few signs that things will soon be getting better. Manufacturing output, a key indicator of future tonnage levels, was down substantially even before September 11th and has declined even further since the attack. Access to capital has been severely restricted; a number of initial public offerings were either withdrawn or delayed due to the state of the stock market, and lenders, having been burned by the large number of equipment repossessions and declining asset values, are not willing to relax their stringent loan requirement. There was a startling rise in trucking bankruptcies during 2001, but even with so many companies going out of business, there is still over-capacity in the industry. All indications are that further contraction will occur in 2002.

The very low fuel prices that first appeared in the fourth quarter of last year have not served to rekindle trucking executives' hopes. They are aware that, historically, conflict in the Middle East has ultimately resulted in decreased petroleum production and higher prices. The only other bright spot, the easing of the driver shortage due to industry contraction and a higher national unemployment rate, is also thought to be temporary in nature. Trucking management is very concerned as to what they perceive as a fundamental shift in the insurance market. The cost of truck (and health) insurance has been on the rise for almost two years, after a decade and a half of relatively low insurance prices. Furthermore, where in the past there were numerous insurers offering truck insurance, motor carriers now find significantly fewer companies willing to even provide quotes. In the uncharted waters following September 11th, truckers fear that the cost of insurance during the next several years might well become prohibitive. Indeed, the ATA has sent a letter to all 50 state insurance commissions asking that they "closely monitor rate increases in trucking liability insurance" in order to prevent "outrageous insurance premiums."

The economic slump has hit truckload carriers especially hard, with less freight available to fill the trucks. But less-than-truckload carriers, expected to benefit from the inability of shippers to command full truckloads, have also experienced decreases in tonnage, revenue and profits. There were a number of significant mergers and acquisitions during 2001 in both the TL and LTL sectors, including one that created the nation's largest publicly held truckload carrier. Bankruptcies of large trucking companies increased dramatically while other unprofitable, but solvent, carriers decided to simply cease operations and liquidate.

The Teamsters reelected James P. "Jimmy" Hoffa to a five-year term. He will face a number of pressing issues as new contracts are negotiated. The ATA went through an unusual leadership change. After its president Walter B. McCormick, Jr. announced he was departing, William Canary was appointed interim president. For its permanent president it finally selected Kansas governor Bill Graves, who will not be able to assume the presidency until his term expires in January 2003. Until then Mr. Canary will be its president, losing the "interim" prefix in his title.

In the aftermath of the most costly disaster in U.S. history in terms of insured losses, the insurance industry is endeavoring to insulate itself against future terrorist attacks and take advantage of the opportunities which the dramatically changed marketplace now offers. Having been hit with a manmade mega-catastrophe at a time when a hardening market had not yet been reflected in their bottom lines, industry executives are trying to adjust to the new landscape. Almost immediately, terrorism exclusions appeared on almost every reinsurance treaty negotiated after September 11th, and on many facultative policies. In turn, primary insurers began to file new policy forms with terrorism exclusions with state insurance regulators. The National Association of Insurance Commissioners recommended an exclusion for losses of more than $25 million, and this has been adopted by at least 36 states, although it has been rejected by New York. On non-filed classes of business, individual insurance companies began to add exclusions for terrorism to their policies. And in Washington, with insurance organizations pressing for a federal backup in the event of another mammoth terrorist attack, Congress adjourned without taking action.

January 1 is the date when the bulk of reinsurance (and many commercial insurance) contracts expire. With primary insurers uncomfortable writing coverage for terrorism exposures without firm reinsurance commitments, the onus was put on state insurance departments to take some action on insurer requests to exclude terrorism. The uncertainty as to the availability of policies covering all contingencies was threatening to many industries, including builders and lenders, and the potential impact on the economy could be severe.

Truck insurers had been systematically raising rates before September 11th, trying to turn what had generally been unprofitable coverages into more profitable ones. There had been a decline in the number of insurers seeking to write motor carriers, a situation which was exacerbated by the attacks. Aware of the difficulty in replacing existing reinsurers and facing a steep rise in the cost of reinsurance, when obtainable, many trucking programs that were heavily dependent upon captive or reinsurance support faced their program renewal dates with trepidation.

Conversations with cargo insurers disclosed that a higher percentage of them are now operating profitably. This is obviously due, in part, to rate increases, but also to higher deductibles, more exclusions and warranties, and greater selectivity. It is expected that they will be able to take further rate increases during the year. Many b.i. and p.d. underwriters report results are nearing profitability, with significant growth in written premiums and new business. The reduction in the number of truck insurers has left the remaining ones in an enviable position; submissions are pouring in and there is little to restrain them from raising rates even more. The tight market has resulted in residual market servicing carriers experiencing a large increase in applications from trucking companies; should the market continue to tighten, a further surge of truckers into the involuntary market can be expected.

With the NAFTA border opening due to occur later this year, insurers are concerned as to the lack of progress in reconciling the insurance and trade issues that divide the two countries. There is a dearth of information regarding Mexican drivers' licensing, accident and violation records. Also lacking are vehicle maintenance records, and financial and operating data for the trucking companies themselves. Responsibility for cargo, limitations of liability and claims adjustment procedures are also at issue. There have been meetings of insurance and government officials, but with harmonization the goal, much work remains to be done.

We at CAB will long remember the horrific events that unfolded on September 11th. Being located in New York City, and with so many insurance industry members among the victims, the awful reality intruded upon us quite deeply. We extend our most heartfelt sympathy to all of the victims and their grieving families and loved ones.

Once again, the USDOT's FMCSA failed to make any progress on the backlog of unfinished rulemakings that it inherited from the Federal Highway Administration. The two-year old agency, under new leadership, has pledged to rectify the situation as soon as possible and it appears likely that a number of their actions this year will have a direct impact on motor carrier insurers. One of the functions of our website, cabfinancial.com, is to keep insurance underwriters abreast of new government rulings. We invite you to regularly visit the "Bits & Pieces" column appearing on the website; it contains news items of interest to truck insurers and is updated regularly. You can also download the entire text of important USDOT rulemakings and decisions from this website.

We are proud to have enrolled many new subscribers during the past year. This is especially true of those underwriters whose responsibilities include physical damage, workers compensation, umbrella and excess coverages. CAB motor carrier information is as important to them as to auto liability and motor truck cargo underwriters. This past year, many more motor carriers filed annual financial reports with USDOT's Bureau of Transportation Statistics. As BTS improves its internal procedures and enhances its ability to identify non-reporting trucking companies, information on thousands of additional motor carriers will become available. FMCSA's "SafeStat" database has now amassed sufficient information to be of use to motor carrier underwriters. Our subscribers can expect to receive SafeStat information on CAB reports starting February 15, 2002 and when making phone inquiries. The "SAFER" data base is also important to underwriters. Please keep in mind that CAB receives SAFER information not available on the SAFER website; i.e., the nature of the safety violations motor carriers incur. We are pleased to be able to pass this information on to our subscribers. Also, we now automatically alert our subscribers whenever the FMCSA issues an "out of service" order for an insured, presumably closing it down. These orders are issued due to an "unsatisfactory' safety rating that has not been corrected, failure to pay a fine within 90 days or "imminent hazard".

We expect to be able to offer registered "automatic" subscribers access to CAB ratings and other information through our website during 2002. Our goal is to beta-test this during the second quarter and to go live July 1.

In order that we can immediately advise underwriters concerning important government and industry development we intend to make greater use of e-mail in the years ahead. If you would like to receive these bulletins, we suggest that you e-mail us at or mail us your business card containing your e-mail address. We also hope that you will advise us of news concerning internal company events. During the coming year, Andy Schindel is planning on cutting back his workload. Jean Gardner has agreed to take over some of his responsibilities and she can be reached at extension 215.

Our affiliate, Transportation Technical Services, Inc., is America's foremost publisher of transportation directories. The 16^th edition of its flagship National Motor Carrier Directory, containing essential information on almost 24,000 for-hire carriers, has just been published. Among its other directories are The Private Fleet Directory, The Mexican Motor Carrier Directory and The Canadian Motor Carrier Directory.  Financial and statistical information on over 2,700 large motor carriers can be found in its "The Blue Book of Trucking Companies" available in either computer or book format, then can be ordered by phoning (888) ONLY TTS or by visiting their website at ttstrucks.com. During 2001 TTS launched fleetseek.com, to provide on-line access to all of their databases. The senior staff of TTS (and CAB) are recognized transportation experts with many years of experience and are available for litigation, consulting or other purposes.

The law firm of Schindel, Farman & Lipsius LLP specializes in transportation and other coverage matters. It has prepared the following pages concerning recent legal developments and you may wish to share them with your claims department staff.

The year 2001, along with its terrible events that so deeply affected the insurance community and the nation, is now behind us. We hope that this year will bring prosperity, a return to normality and, most of all, peace to our nation and to our loyal subscribers.