In 2018, with peak freight rates, many trucking companies rushed to add to their fleets. Of course, as capacity expanded and rates plummeted in 2019, many of these same trucking companies found themselves needing to decrease the size of their fleet. Coupled with a 300% increase in trucking company bankruptcies last year, this has caused a glut of four to five-year-old trucks hitting dealer and auction lots.
According to recent industry statistics, used truck sales have fallen 18% in the past year, with 2013 – 2015 models being hit especially hard. Many trucking company owners may find themselves with a fleet of trucks worth less than the loan or lease payments that remain.
Consider Loan/Lease Gap Coverage Commercial auto policies pay for the physical damage on a truck at the lesser of the amount stated on the policy or the actual cash value (“market value”) of the same model truck in a like/kind condition. Typically, an insurance adjuster will contact multiple dealerships to obtain bids on trucks with similar features and mileage as the one involved in a loss. If the market value is less than what you owe on the truck, you may find yourself “upside down” on the loan.
Loan/Lease Gap Coverage is an important consideration in today’s volatile used truck market. In short, this coverage pays for the amount you owe on the truck that is excess of the market value. For example, if you owe $75,000 on a 2016 Freightliner that is totalled, the market value may be 20-25% less than this amount. Without a loan/lease gap endorsement, you may owe $20,000 or more to the bank after the insurance company pays for the market value. By adding this endorsement, the insurance company will cover this gap.
With a volatile trucking insurance market and increased costs pressures, it’s important to use all tools at your disposal to keep claims and insurance costs in check. As always, the trucking insurance professionals at The Daniel & Henry Company are here to help you understand what measures you can take to reduce risk and insurance costs. Please call us today at 1-877-406-5915 or email us at RuebsamJ@danielandhenry.com