Bigger transport industry faces growing pains

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NTI provides a snapshot of commercial motor – of the changes wrought by COVID and the challenges associated with growth in an environment that is increasingly volatile

WHEN A 37-year veteran of the insurance industry has concerns about the future, it generally pays to listen. Nick Dendrinos, head of motor at NTI, sees a range of factors accumulating for the commercial motor sector that he doesn’t remember all converging at once ever before. “Major catastrophes, the acute driver situation, claims and average claims-cost inflation, parts, labour, skills ... the industry is at a tipping point,” says Dendrinos. According to Finity analysis, total gross written premium for commercial motor has grown steadily over the last few years. Growth in FY23 was higher than at any time in the past decade, with total GWP jumping 17% compared to the previous fiscal year to $4 billion.

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Steady rise in road freight transport prices

“Major catastrophes, the acute driver situation, claims and average claims-cost inflation, parts, labour, skills ... the industry is at a tipping point”

Nick Dendrinos, NTI

Some of this growth was due to the rise in premium rates but much of it to underlying industry growth. The last year in particular has seen an increase in the number of insured commercial vehicles as supply conditions have improved and government incentives have encouraged investment in higher-value vehicles. “There’s been a lot of double-digit growth, but on the heavy transport side it’s just the sheer amount of growth this industry has had – COVID brought on a huge amount of change,” says Dendrinos. “Freight tasks on average grew over 5% to 10% during the two

A key concern is inflation, in terms of its effects on both transport costs and claims. “I've never ever seen inflation at these high levels,” says Dendrinos. There are many factors that keep prices high for transport companies, including fuel and labour or the cost of parts and equipment. While headline inflation has fallen from its highs, the pace of decline is slower in the transport sector.

The labour side of the inflation equation is likely to be a long-term issue. “We have a driver situation that's now beyond acute,” says Dendrinos. A large part of the problem is an ageing workforce who will shortly retire and take years of experience off the roads. Dendrinos says the most experienced cohort are in the 55–60 age bracket, with the “absolute top-notch” drivers now around the 60-year mark. Against a background of increasing freight volumes, the labour crunch can only get worse. Local initiatives and employing more migrant workers are some of the steps being taken. “There’s a couple of states like Queensland and Tasmania that have brought in some great ideas around creating an apprenticeship scheme to attract drivers, and we support that. But at the same time, I don't think it’s taken off as fast as hoped because there’s still a stigma around being a truck driver.” Using less experienced drivers may also create its own insurance problems.

“The fact is that the industry has been struggling to fill drivers’ spots in trucks – there comes a tipping point around driver quality.” Dendrinos would like to see more encouragement and support for women drivers. Older census data shows female representation is as low as 3% of the truck-driving workforce, with Freight Australia readings at a healthier 15.6% share as of 2022. Either way, there is room for improvement. “But there’s still challenges around [women] not feeling safe

The convergence of increased costs and the likelihood of their continued growth in the years ahead is a concern for Dendrinos. The question is, will the system continue to be able to absorb them? “It’s going to get worse before it gets better,” he says. “There are genuine concerns about customers and affordability. The risk landscape is [attracting] a huge amount of costs, and the cost of doing business has shifted. “As an insurance provider, we need to calibrate for those costs … insurance has to recalibrate, which may mean increases in premiums. Insurance doesn’t go backwards; it has to go forwards.”

Aerial view of trucks loading at logistic center

More volume, more risk

No easy fix for labour costs

Published 20 May 2024

“To have a good safety culture, you have to have a good people culture – you can’t have one without the other”

Nick Dendrinos, NTI

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150

Jun 20

Sep 20

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Mar 22

Jun 22

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Source: ABS Producer Price Indexes

Source: APRA data, Finity analysis

FY23

Growth in commercial motor ave[CEROS OBJECT]rage GWP

$500

$1,000

$1,500

$2,000

$1,250–$1,500

FY22

FY21

FY20

FY19

FY18

FY17

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FY15

$1,250–$1,500

$1,500–$1,750

$1,750–$2,000

years of COVID. It’s slowing down a little bit now, but there’s a lot of growth in the industry still, and that growth has obviously been a success for us.” Dendrinos expects the momentum to continue. “Freight movements are going to continue to grow between 2% and 5% [each year].”

Perhaps it’s the speed of this growth that underpins some of Dendrinos’ apprehensions. “There is an inertia of everything with such huge growth,” he says. Freight Australia data shows total road freight volumes on an inexorable march upwards over the last decade. Keeping up has been a challenge, but firms like NTI will need to continue providing solutions that can meet the needs of a much bigger industry as Australia’s road freight is expected to grow a staggering 77% to 2050. “This brings on a lot more risk, a lot more safety challenges, a lot more operational challenges for transport operators in the business – managing costs, managing procurement of vehicles, and also dealing with the still-ongoing disruptions to the supply chain.” As the largest insurance provider for transport logistics in Australia, NTI is uniquely placed to offer the best outcomes for customers during this turbulent period. “We’ve got a high-service model, and we work very closely with industry … we shared in the success of the industry by being there for them and providing them insurance coverage.” Dendrinos says NTI’s record during the pandemic was outstanding. “We transitioned really well; we’ve got this unique drive. It’s hard to explain, but [NTI] is not like a traditional insurance company. We were very generous with our brokers around how we managed premiums, and we were very, very flexible. At the end of the day, we were there for our customers. “At the same time, we invested in our platforms and tools – we just kept investing in our business to ensure that we provide the best service possible.” But as the growth continues, the stakes increase for getting insurance right for the sector.

Transport claims eased during COVID due to the lack of vehicles on the road, but those days are over. “It was a great time; trucks had free rein, and good returns were made – what I would call unsustainable-over-the-long-term great returns. Now things are normalising, and the cost of doing business has definitely shifted,” says Dendrinos. Accident rates are up, and Dendrinos has seen a shift in driver attitudes since pre-COVID. Fuel consumption, which makes up 60% of a transport operator’s costs, also remains high. Prices have fallen for some new commercial vehicles but not all. Dendrinos cites a case of a year-old truck involved in a rollover earlier this year; it needed to be replaced, and the same model cost 30% more than it did in 2023. The cost of used trucks has also eased, but recent Datium Insights Monthly Used Truck & Equipment data shows that the respite may be brief. Prices jumped by 10% in February, marking the largest increase in over a year. While parts costs have risen across the industry overall, NTI is in a strong position to counter this due to its cost-effective procurement process. The size and scale of its orders, along with its relationships with original equipment manufacturers, allow NTI to obtain parts at a discount. The centralised parts procurement system also means parts can be procured faster, helping save valuable time in the repair process. “We are the largest heavy vehicle parts buyer in Australia. We use that benefit to return to the customer a better outcome on their claims, which obviously helps them when it comes to managing their premiums down the track.”

Battling costs of claims, equipment, fuel and parts

on the road network or at rest stops. There’s a real opportunity here to create a safer and more comfortable working environment for everyone on the road, even just by getting more government support for good-quality rest stops … it’s a real problem.”

Can the industry find the resources to grow into more risk?

Mitigation and safety measures are key to helping companies not only reduce the cost of an incident but also lower premium overheads. NTI risk engineers regularly go out and speak to customers about tools and services that increase safety and reduce costs. “We’ve seen fleets that have really engaged it; we’ve seen improvements in loss ratio and claims performance,” says Dendrinos. At the same time, the cost of implementing many safety measures is not cheap. “The most effective [safety measure] in my opinion, if you’re going to go by technology alone, is fatigue reduction technology and real-time fatigue reduction alerts.” Dendrinos acknowledges that different things work for different companies. “[Technology] is not a silver bullet; it’s just a part of a risk management system. The silver bullet is to have a really strong safety culture … to have a good safety culture, you have to have a good people culture – you can’t have one without the other.” Another important collaboration is NTI’s involvement with Healthy Heads in Trucks & Sheds, which promotes the prevention and understanding of mental health issues that exist across the road transport and logistics industries. Driver wellbeing is impacted by a range of factors, but one of the most important is mental health. “[Being on the road] is long, it’s lonely; they're away from their families. It would be a struggle for your mind, let alone if you’re involved in a major incident or if you see a major incident.”

Improving safety measures

Indeed, the average premium per risk for commercial motor increased from just over $1,500 in FY21 to closer to $2,000 in FY23. The rise comes after several years of stability. “We’ve been fairly consistent for a long time, but the costs have shifted. We’re working with our customers and brokers to get sustainable-type solutions for both, but costs are up.” Dendrinos calls the current stressors evident in the system “growing pains” – something that companies like NTI aim to help customers with as much as possible, but the reality is that insurance providers also need to grow in order to provide corresponding support. “Customers that are having a lot of losses are likely struggling to control their growth, and they’re obviously going to feel the brunt of not only that disruption but also the increased costs of everything, including insurance.”

NTI insurance products are administered on behalf of the insurers by NTI Limited ABN 84 000 746 109 AFSL 237246. This article contains general information only and you should obtain your own professional advice based on your personal and business circumstances. NTI bears no responsibility, and shall not be held liable, for any loss, damage or injury arising directly or indirectly from your use of or reliance on the information in this article.

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GROWTH IN COMMERCIAL MOTOR AVERAGE GWP (per risk)