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2007 REVIEW AND A LOOK AHEAD TO 2008 MOTOR CARRIER INDUSTRY Introduction Each year as we begin the process of reviewing the events of the preceding year and analyzing the issues which will impact the trucking industry and its insurers in the coming year, we always start with a look back over the monthly Bits & Pieces and the prior year’s resumé to determine what affect reported and anticipated events actually had on the industry. Our reports have generally focused on the economic and political issues at the forefront of the industry at that time. It is interesting to note that despite the often dour forecasts contained therein, the industry has continued to persevere. The same bodes true for this year. While many economic and political changes affected the landscape of the trucking industry overall it has maintained its place as a viable part of our economic community. In today’s climate, even maintaining the status quo can be considered a plus for many businesses. This past year saw the economy hit hard, as housing and auto markets took a big hit. The economic forecast continues to roller coaster as we hear whispers of a full recession in the coming year. The sub-prime mortgage debacle stalled home building, which has seen its largest decline in years. The domino effect is evident in the transportation industry which plays a critical part in the delivery of home products and building materials. Trucking generally serves as a barometer of the U.S. economy because it represents nearly 70 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. However, as the manufacturing sector weakened there was less freight to be transported. Reduced auto sales also negatively impacted transportation tonnage as manufacturers moved to limit production and therefore the need for the transportation of parts. The monthly tonnage reports suggest continued volatility and softness in freight volumes, despite the month-to-month and year-over-year gains. Almost every monthly increase in the seasonally adjusted tonnage index was followed by a decrease the following month. Truck and tractor sales fell as carriers expressed hesitancy in increasing fleet size in light of the reduced freight capacity, although at years end there was some slight increase in orders. At least the beginning months of 2008 are expected to be exceptionally difficult, with high fuel prices and continued soft freight volume. On a more positive note, while certain aspects of the economy have sputtered there have been enough increases in other sectors to allow for continued hope that the coming year will ultimately prove economically sound. Consumers have pulled back, but not stopped, spending. There were a number of trucking bankruptcies in 2007, however, some carriers wisely reduced their fleets and operations in an effort to alleviate the financial strain of the current economy. Some economic analysts predict that more small fleets will close, and there will be more consolidations, which may allow the remaining carriers to maintain or increase their operations. Politics, as always, plays its own role in shaking up the economy and impacting the transportation industry. With a new Democratic Congress and a lame duck President, battle grounds were drawn early. Chairmanship of the House Transportation and Infrastructure Committee went to the Democrats. DOT Secretary Mary Peters went on record that she hoped to reduce the involvement of the DOT in funding transportation projects while at the same time setting standards for interstate highways. The DOT and Congress continue to clash over the Mexican border pilot operations. Highway privatization, congestion pricing and increased tolls have been pushed by the DOT while Democrats fought for increased fuel taxes, neither of which can really help the economic bottom line of most truckers. The collapse of the I35W Bridge in Minneapolis focused public and political attention on growing problems with an aging infrastructure. The expenses to modernize and maintain these structures have lead to more division over who will bear the cost for those necessary steps. The highway bill that determines where the money comes from and where it will go will be up for reauthorization this year and a contentious battle is expected. States have begun suggesting their own plans for finding monies to fix growing problems, with New York City’s proposal for congestion pricing leading the way. Fuel, both its cost and efficiency, remain critical issues for truckers and politicians. Congress attempted to pass broad legislation to raise taxes for oil companies and promote renewable energy. While unsuccessful in that endeavor, the new legislation does require cars and light trucks to reach an average 35 miles per gallon by 2013, which is important as forecasts by some indicate that the number of vehicles on the road will grow to 1.1 billion in the next 15 years. It also contained the authorization for a study on truck fuel economy, which is hoped to be used to launch national standards for heavy duty truck fuel economy. Fuel costs, which account for a serious percentage of any trucker’s operation, have reached new heights. Diesel prices peaked at the end of November; at a highest ever record of $3.444 per gallon. According to ATA estimates, the trucking industry burns 730 million gallons of fuel per week. While the Department of Energy has indicated that diesel prices at the end of 2008 are projected to be at $3.08 per gallon, lower then the high of 2006, it bears noting that this is already an increase over prior projections for the year. Efforts are also focused on reducing emissions as part of the overall effort to reduce greenhouse gases as states sought to obtain the authority to regulate gas emissions. More than a dozen states had requested relief from the EPA, which has now denied California’s request to regulate the emissions. The states have vowed to continue the fight. Despite efforts to fight the implantation of a plan for the single source for government shipments, known as the Defense Transportation Coordination Initiative (DTCI), the GOA rejected the last remaining protest and awarded Menlo Worldwide Government Services, LLC the coveted fixed price logistics contract with the U.S. Department of Defense, which is valued at $525 million for the base period of the contract. If all option periods are executed, the value of the contract could exceed $1.6 billion. Menlo provides shipment planning and transportation management and execution for the defense department in the continental U.S., which is essentially the largest shipper in the country. Certain categories of freight will be excluded from DTCI, such as sensitive and/or classified shipments, arms, ammunition and explosives, bulk and missile fuels, household goods and privately owned vehicles. Tort reform continues to make some small headway for truckers and insurers. The American Tort Reform Foundation has issued its 2007 report, adding Clark County, Nevada and Atlantic County, New Jersey to their list of judicial hellholes. They join South Florida, the Rio Grande Valley and Gulf Coast of Texas, Cook County, Illinois and West Virginia to round out the top group of most unfair civil court jurisdictions. On a positive note, the Supreme Court ruled that a punitive damage award can not be based upon perceived harm to others who are not a party to the law suit, a decision which will benefit truckers. With a Democratic majority in Congress, federal changes to tort reform are not expected and there has been some indication that states are trying to reverse some reforms which were put into place, not always with success. At year’s end the Ohio Supreme Court upheld its state statute limiting tort recovery in certain circumstances. The "2007 Update on U.S. Tort Costs Trends" released by Towers Perrin indicates that tort costs have actually decreased by 5.5%, the first decrease since 1997 and the largest decrease in 56 years. The tort system cost approximately $247 billion in 2006, or $825 per person, which was $7 less than in 2005. Unfortunately, they forecast that the trend will not continue in the same direction in the coming year, with tort costs expected to increase. The Fulbright Litigation Trends survey found that overall corporate litigation has diminished. In an interesting trend, the report indicated that 56% of companies surveyed tried to settle cases before trial, with smaller companies less willing to settle than mid-cap or billion-dollar firms. The energy industry saw the highest overall settlement rates (80%), followed by engineering, health care and insurers. Companies based in the Midwest settled more often than those in other parts of the country. Continuing the tradition of ending this section of the resumé with the latest news on the Mexican/U.S. border operations, we once again note that the border is still not open. While the FMCSA did commence its proposed pilot program for 100 carriers, it faced political and legal challenges throughout the year as efforts were made to stop the program. At year’s end Congress’ final spending package, signed by President Bush, removed any funding for the program. While the FMCSA has acknowledged that in accordance with the spending bill it will not implement any new program, it has indicated that it intends to continue with the existing pilot program citing an ambiguity in the legislation. Various organizations and congressional members have expressed their dismay at the FMCSA’s interpretation of the spending bill as they sought to terminate even the existing pilot program and now contend that the FMCSA is in violation of the law. This will remain a fight in the coming year. There have been rumors the Mexican government is considering blocking U.S. exports of certain products if the pilot program ends. On the other side of the country, despite much opposition, the U.S. Department of Agricultural implemented its inspection fees for carriers entering the country from Canada. The Canadian government continues to seek removal of the fees and has proposed alternatives to the fees. On the plus side, surface transportation between the United States Canada and Mexico continues to rise 5.5 percent higher in September 2007 than in September 2006, reaching $66.8 billion, according to the Bureau of Transportation Statistics. Government Activity Although there are many government agencies which issue regulations which impact the transportation industry, the FMCSA continues, by far, to have the greatest impact on the trucking industry. This year the FMCSA faced harsh criticism for its delay in moving forward on its long term plans to improve truck safety and for extended delays in addressing other long awaited rulemaking. The most pivotal of issues this year, as it has been for many years, was the hours of service under which a driver may operate. At the end of 2006 it was thought that the new rules were squarely in place and that the FMCSA’s attention could finally turn to other issues. However, early in the year a Federal Court determined that the FMCSA had failed to comply with its regulatory obligations and invalidated the rules. The Court held that the FMCSA had failed to determine the affect of the new hours on driver fatigue. That led first to a flurry of activity to determine whether trucking would be forced to return to the old rules while this issue was addressed. It was argued that return to the old rules would simply create more confusion as drivers had already begun the changes necessary to comply with the new rules. The FMCSA was granted a stay and permitted to retain the new rules while it evaluated its statutory obligations. At year’s end the FMCSA issued its interim final rule, upholding the existing HOS which contain the 11 hour driving limit. The FMCSA determined that providing that 11th hour for operation has not resulted in increased accidents, citing new data that in 2006 the fatality rate per 100 million vehicle miles traveled was 1.94 – the lowest rate ever recorded. In addition, since 2003, the percentage of large trucks involved in fatigue-related fatal crashes in the 11th hour of driving has remained below the average of the years 1991-2002. Between 2003, when the 11-hour driving limit and the 34-hour restart were adopted, and 2006, the percent of fatigue-related large truck crashes relative to all fatal large truck crashes has remained consistent. In last year’s resume we reported on the court filing by various organizations to reject the rules and this year we conclude with the almost the same statement. Consumer groups and unions have moved to vacate this interim final rule which means that the FMCSA will have to continue its focus on concluding these rules in the coming year. The electronic on board recorder regulations are still pending. Early in the year a rulemaking was proposed which would require certain carriers with a history of existing hours of service violations to install electronic on board recorders. Although the FMCSA held listening sessions to address the impact of the proposed rulemaking, no final rules have been forthcoming. The FMCSA has indicated that it will publish a final rule in the coming year and that it intends to expand the requirement for use of the recorder to a greater number of carriers. Proposed rulemaking concerning the obligations of intermodal equipment providers is also at a standstill. The FMCSA issued its proposed rulemaking which would require providers to file an MCS-150C. The regulations are intended to reduce the current exposure that truckers face while using potentially unsafe equipment on public roadways and require more inspections by equipment owners. Comments on the proposed rulemaking ended mid-year but there has been no further notices issued by the FMCSA. Rail and ocean carriers opposed the new rulemaking and so it is unclear where the FMCSA will stand after their comments. Last year we reported that the FMCSA had accepted petitions to address whether the MCS-90 endorsement extended protection to accidents outside the U.S. and whether Canadian insurers could make filings. While the petition was accepted and various comments filed the FMCSA has taken no action on the petition. The regulation of household goods transportation brokers is also pending. The FMCSA has proposed to further regulate these operations and has suggested civil penalties for unlawful estimating practices and increased penalties for providing services through unauthorized carriers. The proposed new stopping distance for trucks was similarly pushed to the back burner. The rules, which were to cut the allowable distance by 30% was supposed to have been published in 2007. Finally the GAO issued a report rebuking the FMCSA for its failure to issue fines for serious safety violators although it did acknowledge that the FMCSA was making headway in targeting high risk carriers. The FMCSA has made a push toward increasing compliance reviews as a way to reduce accidents. The FMCSA’s Safestat program continued under fire this year, although its prognosis is better than in years past. A preliminary study of 15 states found that only 64% of non-fatal truck crashes were reported. The FMCSA continues evaluating steps to create a better data gathering program to insure proper reporting of accidents, both fatal and non-fatal. The most recent GAO report indicates that the system is better than before, but still needs substantial improvement to permit proper analysis of a carrier’s safety. The FMCSA is also still moving toward completing rules for new driver entrants. At year’s end it issued its revised standards for mandatory training for entry level operators. Minimum classroom time and behind the wheel training from accredited programs will be required, if the proposed rules are ultimately enacted. As noted, there are other governmental agencies which impact trucking. The FDA issued its Food Protection Plan which is designed the address the many issues raised by the problems with adulteration and contamination of food this year. For truckers, the FDA has requested the authority to require measure to protect against the intentional adulteration of food, such as requiring locks on tanker trucks transporting food. At the current time seals and locks are not mandatory. Of some great satisfaction to the insurance industry which actively pursued these changes, the U.S. Sentencing Commission has proposed various sentencing guidelines for cargo theft. The new guidelines will impose different levels of penalties for cargo theft, which remains a critical concern to insurers, shippers and truckers. Each year finds new and cleverer ways to steal the cargo moving though our country. The Corridors of the Future program, one element of the DOT’s six-point National Strategy to Reduce Congestion on America’s Transportation Network has created its own set of issues as it also takes over monies designated for evaluating parking options for truckers. The scarcity of safe parking has been a problem for truckers for a number of years. As the overall national congestion initiative is focused on reducing traffic on highways, relieving freight bottlenecks, and reducing flight delays, through privatization, tolls and designated truck roads, the issue of parking has apparently been moved to the side in the Federal Highway Administration agenda. The lack of parking should be a concern to insurers, as trailers left in unmanned parking facilities bear a great risk of theft. After a year of confusion over the existence of the Uniform Carrier Registration program, it has finally gone into effect. There was so much confusion that at one point during the year Single State Registration was reactivated for a short period of time in case the UCR was not completed. The new UCR collects fees from for hire carriers, as well as private fleets, truck renting and leasing firms, and truck brokers, creating a broader range of fee collections. Although the system is in place, not all states have joined the program and in 2008 we will see which states are able to get the system up and running. At the end of 2007 34 states had indicated that they would utilize the system in the coming year. Cargo security remains a critical government concern. President Bush signed into law various recommendations from the 9/11 committee which address the security of cargo entering the country. The legislation imposes a July 2012 deadline for all foreign cargo containers shipped to the United States (except U.S. and foreign military cargo) to be scanned by non-intrusive imaging equipment and radiation detection equipment at the foreign port before being loaded on a U.S.-bound vessel. While a needed security precaution it is expected to raise the cost of importing goods. The Motor Carrier Industry We can start with some encouraging reports. The U.S Census reports that commercial trucks traveled 91 billion miles in 2006, a number equal to nearly 200,000 round trips to the moon. Revenues were $220 billion, of which $204 billion was from long-distance trucking. 96% of the revenue was from transportation solely within the U.S. borders. The largest dollar volume of truck shipments were new furniture and miscellaneous manufactured products, agricultural and fish products, base metal and machinery, and wood products, textiles and leathers. The report also contained a number of results which insurers should consider in evaluating where to market business. For example, couriers and messengers revenue was $72 billion in 2006 and warehousing and storage totaled $21 billion. Approximately 84 percent of trucks and trailers were owned and/or leased with drivers, while 16 percent were leased without drivers. General freight trucking, which handles commodities transported on pallets in a container or van trailer, contributed two-thirds of all trucking revenue with $147 billion. Trucks transporting specialized freight — requiring equipment such as flatbeds, tankers or refrigerated trailers because of the size, weight or shape of the commodity — accounted for the remainder of trucking revenue at $73 billion. Local general freight trucking revenues, which come from carrying goods within a single metropolitan area and its adjacent non urban area, grew 12.3 percent to $25 billion. Long-distance general freight revenues, which come from carrying goods between metropolitan areas, increased 4.3 percent to $122 billion. The ATRI study on trucking indicated that hours of service and driver turnover were the top two concerns in the industry in 2007. Driver turnover continues to be a problem for the trucking industry and 2007 saw carriers focusing on ways to keep drivers in their stable of employees. ATA statistics indicate that turnover rates at large truckload carriers continue to exceed 100%. In at least one study, research concluded that long and irregular weekly work hours, little predictability on time at home, and the stresses of operating a big rig are the leading cause of high turnover. The research also showed a big spike in turnover after training was complete and again at the end of the first year, when drivers generally have no further obligation to the company. Of 1,069 new drivers studied, only 39 percent remained on the job, while 15 percent were discharged and 46 percent voluntarily quit. A number of companies have reported implementing driver incentives, better vehicles, pay raises and wellness programs in an effort to keep good drivers. Fuel costs, congestion, government regulations, tolls, tort reform, driver training, environmental issues and on board recorders rounded out the top ten list of industry concerns. Rate bureaus, which have been part of the transportation industry for years, have allowed carriers to collectively establish rates for transportation. For many years these rate bureaus had the benefit of antitrust immunity. The Surface Transportation Board ended that exemption finding that the continued exemption was reducing competition. The trucking industry has also been impacted by identity fraud issues. There has been a rise in reported losses arising from cargo thefts caused by imposters stealing the identity of trucking companies. In addition, earlier in the year various companies reported receiving false requests from the DOT for release of financial information. Some major union contracts came up for renegotiation this year. In an unprecedented step, UPS withdrew from the Teamsters pension fund after payment of a large penalty to the fund. Other carriers are expected to seek negotiation of their right to withdraw. The National Master Freight Agreement is up for renewal in March and efforts are underway to negotiate a contract and avoid labor unrest. The trucking industry continues to look for ways to change its operations. A number of large carriers have entered into the international market, opening operations in China and other Asian countries in order to expand its control of the logistics of international freight. Truck accidents are a major factor in the economics of a carrier. The FMCSA reports that a motor carrier must generate an additional $1,250,000 in revenue to pay the cost of a $25,000 accident, assuming an average profit of 2%. The government data states that in 2006 there were 368,000 accidents, of which 287,000 involved only property damage, with 77,000 involving injury and 4,321 fatal injuries. There were 331 fatal bus injuries The 10 States with the most fatalities from large truck crashes in 2006 were (in descending order): Texas, California, Florida, Georgia, Pennsylvania, New York, Illinois, Ohio, Missouri, and North Carolina. Overall the numbers are better then the prior year. The Commercial Vehicle Safety Alliance Road check also reflected some improvements in driver operations. While there were a higher number of hours of service violations at least some portion of those violations can be attributed to the confusion over the changes with the rules. Insurance Underwriting The fourth consecutive year of double-digit returns on capital is a welcome sight to the insurance industry and the financial market. With so many financial services impacted by the mortgage and real estate market at least insurance has helped keep up the overall numbers. Fitch Ratings reports that strong underwriting performance, together with a limited catastrophe season and good loss reserves have helped create this success. In late 2006 and early 2007 the predictions for the year were not as high, as cat modeling indicated higher losses and the overall market appeared to be softening at a quicker pace. ISO and Property Casualty Insurers Association of America report that the combined ratio — a key measure of losses and other underwriting expenses per dollar of premium — went to 93.8 percent in the first three quarters of 2007 up from 91.5 percent for the same period in 2006. It is still the second best ratio for the first nine months of any year since 1986. Net written premiums were $337.6 billion for 2007, basically unchanged from 2006, with written premium growth dropping to zero percent. Net loss and loss adjustment expenses (after reinsurance recoveries) increased $7.3 billion, or 3.4 percent, to $219.6 billion for these quarters. Excluding catastrophe losses, ISO estimates that net loss and loss adjustment expenses increased $12.5 billion, or 6.2 percent, to $214.5 billion in the first nine months of 2007. The cyclical nature of the insurance industry, confirmed by its historical trends, indicates that a downturn is to be expected, as the positive returns will generally not last long. The market continues to soften. Some reports indicate that there will be a decline in operating profitability and return below required levels. Market surveys indicate that there was an average 13.3% decline in market price during the third quarter of 2007, the largest decrease in 14 quarters. Market Scout reported that commercial property/casualty rates dropped an average of 16% in December, 2006. The Terrorism Risk Insurance Act was extended to 2014 and appears to be the only relevant regulation to actually make its way through the government maze. The Nonadmitted and Reinsurance Act, designed to create uniform regulations for surplus lines insurance companies and reinsures is being negotiated and lobbied by the interested parties. In light of the public outcry following the uninsured losses after Hurricane Katrina, legislation has been proposed which would repeal the limited antitrust exemption for insurers and give the Department of Justice and the Federal Trade Commission the authority to apply the antitrust laws to insurance companies. The transportation insurance industry has a unique place in the overall insurance market. Trucking is one of the few insurance markets which have such a niche market and in fact has insurers whose sole business is writing various forms of trucking insurance. Entire businesses, including our own, are devoted to assisting insurers in analyzing the risk and understanding the nature of the insured’s operations. Truckers look to the insurers to offer safety information and insights into their operations which they do not otherwise have. When questioned on what they look for in an insurer, many truckers look for the an insurer which has showed its staying power in the transportation insurance field as well as their use of underwriters and claims adjusters who are familiar with the intricacies of trucking and can wind their way through the myriad of red tape and regulations. This should remind insurers that it is important to maintain a staff of qualified underwriters and claims staff and to utilize the unique knowledge available from CAB to make your book of business the best it can be. Central Analysis Bureau Among the biggest challenges facing insurance underwriters today is managing information. More information is available now than ever before, yet the amount of time needed to collect, maintain and analyze this information can be overwhelming, significantly increasing the burdens on an underwriter and reducing efficiency. For nearly 70 years, Central Analysis Bureau, Inc. has been there for the motor carrier insurance industry, serving as the underwriter’s one stop source for information. With the launch of CAB’s "Know Your Insured" program several years ago, CAB now provides superior analysis and management reports and tools that allow underwriters, managers and claims personnel to view information about their insureds in a way never before available. Our Submission Report which was introduced last year is quickly becoming a staple to underwriters of subscribing insurance companies. Also included in this program is CAB’s Financial Analysis Report which includes critical information regarding the financial condition of motor carriers, as well as our own proprietary CAB Rating system – one which has been a recognized standard within the industry since 1939 and a proven indicator of safety and financial performance. In conjunction with its Insurance Filing Monitoring Program and Safety Monitoring Program, CAB’s "Know Your Insured" program will effectively allow underwriters to make better underwriting decisions and minimize an insurance company’s exposure and liability under regulatory filings. In place of the separate databases and sources available on the USDOT’s SAFER, SafeStat and the FMCSA’s L&I websites, CAB has aggregated all available information raw information, both public and proprietary, into a single unified database. Having all this information in a single location provides CAB with the opportunity to perform its analysis based on the most complete snapshot of all available data. Cross-referencing of the data allows conflicting and inaccurate information to be filtered out. Issues that might otherwise have been overlooked are now caught by CAB’s systems and highlighted for the underwriter to review. Because too much information can be confusing, maximum effort has been made into the assembly and presentation of this information to create intuitive and easy to use report formats. Recognizing the need for education, CAB provides full service along with its products. Our trained analysts are available to help underwriters understand the reports and ratings provided by CAB. Web based demonstrations are available upon request and can be performed on a one-to-one basis, or broadcast to up to 15 people in 15 different locations simultaneously. We would also be pleased to provide a demonstration of our products to any interested party not currently subscribed to our services. In response to the successful class last year at the seminar jointly hosted by the law firm of Schindel, Farman, Lipsius, Gardner & Rabinovich and Central Analysis Bureau, Inc. regarding the understanding and use of available information, we are proud to announce that there will once again be a session at this year’s seminar to introduce participants to the frequently underutilized yet accessible tools which can enable underwriters to more effectively underwrite motor carriers and vastly improve their results, as well as provide advanced information for more in depth investigation during the claim process. Many insurance companies are already reaping the benefits of subscribing to all of our products. For those of you not familiar with all of our products, space only allows a short introduction, so we encourage you to contract Shuie Yankelewitz at 212-244-6575 x225 or syankelewitz@cabfinancial.com for more in-depth information. Safety Monitoring Program: Beginning with the initial application, throughout the term of the policy, and at the point of the policy renewal, CAB’s Safety Monitoring Program will help you research and track all potential and current risks. Information collected by the USDOT at weigh stations and roadside inspections, accident reports, audits and other government operations are collected and assembled by CAB’s systems. Upon submission of an application from any motor carrier, our Submission Report is available. This report is unparalleled with regard to the information displayed, including financial and safety ratings, operating authority, insurance information, out-of-service statistics, reported power units, trailers and drivers and states where inspections have taken place, as well as a list of individual VIN numbers of vehicles inspected and all associated violations. Warnings are prominently displayed on the front of the report to alert the underwriter to any issues of concern with regard to the carrier. With this report in hand, an underwriter need look no further. Because underwriting should not end with the issuing of a policy, CAB will continue to monitor the insured with our Baseline Report followed by our weekly management Update Reports, which highlight any significant changes in a carrier’s safety performance. At the time of renewal, generally 90-120 days before the termination of the policy, a Renewal Report is distributed with all the most recent information so the underwriter will have the information readily available. Insurance Filing Monitoring Program: Insurers are routinely faced with unanticipated exposures because U.S. Department of Transportation filings have not been cancelled, filings are made with greater limits than required or filings are made for carriers that did not even require filings. Improper filings are a ticking time bomb for any insurer. Every day that any incorrect filing remains in place, you increase your risk and potentially affect your bottom line. CAB is the only company to offer the management tools that would allow for a company to eliminate problematic filings, as well as real-time tracking of all new filings the month they are issued. On a monthly basis, we scan through all the outstanding filings that an insurance company has registered with the FMCSA. Each individual filings is analyzed to determine whether or not it falls under any of the following categories: Filings with effective dates 5 years old or older; filings on behalf of carriers whose authority has either been revoked or never granted; filings utilizing a form that results in an effective filings with no dollar limit; filings for amounts in excess of the FMCSA required limit; unnecessary cargo filings on behalf of contract carriers; filings for brokers (a broker does not require a filing); filings on behalf of Mexican carriers (filings not required for Mexican carriers). We then send subscribers a report which lists all of these potentially problematic filings, and a spreadsheet with all outstanding filings for the subscriber's insurance companies. This report also has a special section dedicated to a "real time" analysis of all new filings, allowing an insurance company to fix errors quickly and to trace how these mistakes occurred. Since an insurance company's liability under a filing can range from $10,000 per accident for a cargo filing to as much as $5,000,000 for a BIPD filing, avoiding even one payout from an unnecessary filing or limit will pay for the cost of this program for many years. The Financial Analysis service: The original and still essential way in which CAB has helped underwriters to know their insureds. For almost 70 years CAB has been performing financial analysis and providing ratings on motor carriers. Our analysis is designed specifically for motor carriers and the concerns of insurance companies. No other source can provide this type of specific and targeted analysis. In addition to the direct financial responsibility insurance companies assume under their regulatory filings, financial condition has been shown to be directly correlated with safety performance. The motor carrier industry continues to be volatile, with the FMCSA issuing over 50,000 new docket numbers each year and a similar number of motor carriers ceasing to exist. Subscribers can submit financials to be rated, or use our website to look up ratings and information already in CAB’s database. As noted in this resumé and in our Bits & Pieces during the year, the motor carrier industry in 2007 faced strains from increasing costs and slowing freight volumes, resulting in an increase in bankruptcies. There trends are expected to continue and possibly even worsen in 2008. The breakdown of rating included with this resumé shows that while the number of companies rated SATISFACTORY or FAIR has increased, so has the number of carriers rated POOR and UNSATISFACTORY. This indicates that the motor carrier industry is becoming increasingly divided into companies that are strong financial and those that are weak, with a reduction in those just "getting by". All this makes it even more important for underwrites to keep a close watch on the financial condition of their insureds and prospective insureds. In these volatile times financial condition can change, for the better or worse, very quickly so it is important that decisions be based upon current financial condition. We continue to be gratified by all the positive comments we receive about our monthly e-mail newsletter, "Bits & Pieces". We all get way too many e-mails in our inbox but this is one that we have been told many await every month and find to be a "must read". This newsletter, which is sent free of charge to all subscribers, keeps you abreast of the news of the month in transportation and insurance, provides a heads-up on regulatory activities and provides information on the latest court battles over issues which affect your exposure. As the government issues or changes rules and as the various courts of the land opine this newsletter gives underwriters the information to keep policies up to date. If you do not currently receive this newsletter, but would like to, please e-mail Mark Schweber at mschweber@cabfinancial.com. In 2008 we will continue to seek out new information to help underwriters to know their insured and work to provide this information in the most effective manner possible. We will also continue to solicit feedback and to incorporate that feedback into our products. The entire staff of CAB wishes you the best for the coming year. Please do not hesitate to contact us with any questions regarding specific motor carriers, the industry in general, regulatory issues or coverage questions. There is always someone here to help you. Schindel, Farman, Lipsius, Gardner & Rabinovich LLP's "Recent Developments in Transportation and Insurance Law" Copyright 2009, Central Analysis Bureau, Inc. |