It is only a single report built around the words of one unnamed executive, but the outlook TD Cowen has laid out for broker insurance in the wake of the Montgomery decision is a sobering one.

In a report from TD Cowen's transportation team, led by managing director Jason Seidl and based on a phone call with an unidentified "trucking insurance agency executive," the firm said what it has heard so far about the looming rise in broker insurance premiums from Montgomery fallout has been enough that "commentary from our call keeps us negative on the brokers."

That negative outlook covers three companies, TD Cowen said: RXO (NYSE: RXO), C.H. Robinson (NASDAQ: CHRW) and Landstar (NASDAQ: LSTR).

The Montgomery decision, handed down in May, removed the liability and negligence protection for brokers that had been provided by several earlier court decisions interpreting the Federal Aviation Administration Authorization Act (F4A), a 1994 law that had long been read to preempt most state-level claims against brokers for the actions of the motor carriers they arrange. By returning negligence claims against brokers to state courts, the ruling reopened the question of how much financial responsibility brokers bear when a carrier they hire is involved in a crash — and that question lands directly on the insurance market that prices and underwrites that risk.

Tripling of premiums

TD Cowen said an unidentified "top 10" freight broker recently saw its liability insurance triple at renewal.

Overall, TD Cowen said, "we estimate that large brokers currently have (approximate) mid-teens rate and mid-20's rate (increases)…that imply material premium inflation."

TD Cowen's guest commentator said there is likely to be "sizeable inflation" in insurance premiums.

Nor can brokers simply turn to competitors for a cheaper quote. "There are only ~10 underwriters involved in broker auto liability that will likely decrease over time," TD Cowen said, with the likelihood that the number will decline to eight in the future.

That group of ten insurers has already shrunk, the report said: "exits have already begun with two observed recently."

On the specifics of a recent premium increase, TD Cowen said, "a large broker which the agent secured coverage for saw premium costs increase from $3 million to $10 million in their excess coverage layer above the $15 million primary layers."

Up and down after big decisions

What constitutes an acceptable level of coverage beyond the "primary layer" — both after the Montgomery Supreme Court decision and the $600 million nuclear verdict against C.H. Robinson in the case of Lipe vs. Lupus Superior — has thrown the insurance market into volatility over just the past three to four months, Seidl said.

The insurance executive interviewed by Seidl said that after Montgomery, which came down May 14, "everything went ballistic." But insurance rates fell after that first surge, only for things to change again: "then post the Lipe case (which produced its nuclear verdict in late July), everything started going haywire again."

Seidl said in an interview with FreightWaves that in the insurance executive's view, that volatility "is a clear sign that the insurers aren't yet comfortable with the amount of liability they're taking on, because they're trying to assess it themselves and it's quickly developing. So it matters when you renew."

Nobody is rushing to take the departed insurers' place. "Appetite to reinsure this group of carriers has also diminished with some recent exits," the report said. "Underwriters are still in early stages of pricing and could see more inflation ahead as they analyze loss rates and risk."

Will the brokerage universe shrink?

The guest executive added his voice to a growing view that Montgomery, together with the higher insurance and vetting costs that come with it, will combine to reduce the number of 3PLs operating in the market.

"Our panelist believes that over time we should expect industry consolidation among freight brokers," the TD Cowen report said. "With roughly 22K brokers in the industry, the top 100 control 84%; smaller carriers will likely face unsustainable insurance headwinds in the coming years."

Shippers will look more closely at their carriers, or the brokers who hire them, the insurance executive said according to TD Cowen — even though recent attempts to drag shippers into negligence cases have fallen short.

The end result, the TD Cowen report said, is that "small brokers will face increased scrutiny from their shipper base, impacting their top line, and insurance headwinds (and the lost ability to cut corners) should pressure margins."

C.H. Robinson and RXO more reassuring

The somewhat apocalyptic tone of the TD Cowen report, and the statements of its insurance-industry guest commentator, stand in stark contrast to comments made by C.H. Robinson CEO David Bozeman at a recent investors' conference hosted by Deutsche Bank.

According to a transcript of his remarks, Bozeman said insurance "on a gross revenue basis is a very immaterial number for us."

That does not mean the company expects its insurance costs to hold steady, Bozeman said. "We do not believe this inflation is going to drive it to a material number for us going forward," Bozeman said. "And whatever that inflation is, we'll offset that and continue to deliver the results that we've been delivering."

More broadly, Bozeman said the higher costs faced by brokers will eventually blend into the landscape.

"Ultimately, that cost will become part of the freight rate environment," he said. "It will become part of every load we quote, and it will become part of the shippers' cost, and it will be passed on to consumers. So we do not see a scenario where higher insurance cost is just a burden that we will absorb 100%. Ultimately, like every other inflation, the consumer will ultimately pay the cost."

The advantage a larger 3PL has in securing insurance rate increases smaller than those of its smaller competitors was also alluded to at the Deutsche Bank conference by Jared Weisfeld, chief strategy officer at RXO.

"Given what we've seen over the last couple of years because of…the (RXO) safety record, the processes, the compliance, we've outperformed significantly over the last few years, and our expectation is that heading into 2027, we will outperform again," he said of potential rate increases.

Weisfeld echoed Bozeman on who will pay the ultimate cost. "Costs will get passed along to shippers and then eventually the end consumer, where ultimately, if the cost of doing business goes higher, we need to still earn a fair margin," he said.

Seidl said in his interview that it may not be that easy for a broker looking to add coverage to first absorb the cost and then pass it on.

"A lot of brokers are trying to go above $50 million now because other than the really large brokers, you didn't have a lot of guys insured for over $100 million," Seidl said. "I think some of them are going to want to do that, but they're going to find that insurance a hell of a lot more expensive."

For brokers, the practical questions in the months ahead are when their policies come up for renewal — given Seidl's observation that timing matters in a volatile market — and how quickly higher coverage costs can be reflected in the freight rates they quote shippers, a pass-through both Bozeman and Weisfeld expect but which TD Cowen's findings suggest may be neither quick nor uniform across the industry.

Source: FreightWaves