The Insurance Report - February 2007

GETTING STARTED
By Roland L. Enz - President, California Plus Insurance Service, Inc.

So, you want to buy a truck and start your own trucking company? Before you go any further, take the time to read this article. Every day we get calls from people who want to start a trucking business or from those who have already purchased a truck without any thought as to what they are going to do with it. It always surprises me in how little thought and planning went into their decision.

Purchasing a truck for the purpose of getting into trucking is a major commitment. We call these folks Green Peas – someone starting in the business without the experience and knowledge needed for success. The failure rate for new owner-operators is over 50%, and 50% of those failures will occur in the first year.

Becoming an owner-operator is no different than if you decided to start a garage or ice cream shop – it takes capital. Money is needed for up front costs, operating costs and reserves to carry you through until you are on your feet. To succeed you must have the ability to sell yourself and be willing to work 24 hours a day while developing your business. The trucking industry is no different. As I have said in many of my past articles, it is important to develop a business plan. You cannot rely on your buddy or the truck salesman in regards to developing your business. You now have a responsibility to succeed, and that need to succeed rests directly on your shoulders.

The costs and time associated with the startup of a trucking business are numerous. Whether you are an owner-operator or a fleet operator, the steps are the same (the amount of money needed just gets bigger). Many of you start without even knowing what you are going to haul, who you are going to be pulling for, what operating authority or authorities are needed and, as far as we are concerned, what types of insurance coverages are required. Do not rely on your buddy for any of that information. Truckers are like fishermen – none of them would ever admit that they did not catch the big one. Revenue is always overstated and expenses are always understated. Insurance is always more for the Green Pea than for the established, seasoned owner-operator.

Since you will be regulated by the California Department of Motor Vehicles, the Federal Motor Carrier Safety Administration or both, time has to be factored into the equation of starting your trucking business. It takes time to deal with the government and the permitting process. You cannot run legally until you have your authority. After completing these applications and getting approval to operate, your insurance company will then have to make the insurance filing. This filing will then allow you to operate. This filing is done by electronic communication to the FMCSA, which is recorded on the following business day, or by mail or fax to the Department of Motor Vehicles (California). With California, the processing time, not taking account for any extra administrative time, will take from 10 to 14 days to get the filing in the system. Paperwork is time, and the process for obtaining your authority can run from weeks to months. If you are running without all of these parts put together, you are subjecting yourself to your vehicle being impounded, cited, shut down, or just a warning from the CHP. I have seen all of these actions taken over the years.

Starting costs for your new business, before you even turn one wheel, are substantial. Your startup projections should include expenses through your first settlement. Most importantly, you should be creating a reserve fund for any and all contingencies. I will bet the farm, that if you purchased a used vehicle, money will have to be put into it in the first 60 days of operation. Again, the lack of understanding of the financial commitments for the new operator astonishes me when he/she cannot even cover the minimum of their startup costs. Insurance is the big nickel – and you cannot run without it. It has to be written prior to your authority being granted to you. That means you will have to pay for your insurance, your permits and your equipment (out of pocket) before you can earn any money with that shiny truck you just brought home.

With regards to insurance costs, you cannot use your buddy’s experience. Costs vary, and you will always be charged more when you start as opposed to when you have a few years under your belt. Some things that influence your insurance costs are age, driving record, type of cargo that you are hauling, value of your equipment, radius of operation and limits of coverage.

Before you waste your time and those that you are starting to talk with, take the time to analyze what direction that you really want to go in. Securing insurance quotes prior to your decision does not always provide you with correct coverage or premiums. You cannot be so naive to assume that all operations are the same. Insurance companies vary as to what they want to write – some companies want local risks and others want long-haul operations. Some want specialized classes of business and others will only write established operations.

If you have no driving experience, your only alternatives may be the California Assigned Risk Program or Lloyds of London. These options may not accomplish what you need. At that time, your only alternative is to lease onto a company that will provide you with insurance, training and the ability to get some experience. The majority of preferred insurance carriers will not take any operator with less than two years experience. So think before you act, and make sure you are ready to make the commitment when you do. If you have any questions or comments, I can be contacted through California Plus Insurance Service at 1-800-699-7101.