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Commercial Auto Insurance: Factors Contributing to Rising Claims and Loss Frequency

 

Commercial Lines Insurers Struggle to Revive Profitability Hit by Slew of Claims Involving Trucks and Other Commercial Vehicles

In recent years, commercial lines insurers have struggled with profitability and experienced the poorest underwriting results in recent memory, prompting the realization that this industry sector needs a better strategy for assessing risk potential. At the same time, insurers need viable data-based mechanisms to help improve driver behavior.

"The commercial auto industry has taken a big hit lately—it lost more than $700 million last year on claims involving trucks and other commercial vehicles. Those losses are translating into higher premiums for businesses.²"

According to a 2017 study conducted by Conning, the 2015 loss and combined ratios of 87.7 percent and 108.8 percent exceeded overall commercial lines numbers by 15 points¹. This disappointing downturn in commercial lines insurance profitability continued into 2016, primarily caused by an increase in adverse loss frequency and severity trends. Across the industry, a confluence of factors has complicated scoring and made accurate risk management more unpredictable.

Factors Contributing to Rising Claims and Loss Frequency

 

Commercial Insurance Claims Examples

 

The problem of rising claims and loss frequency being experienced by commercial insurers can be traced to several factors, including the following:

 

  • Increases in distracted driving, partly because of the increasing proliferation of smartphones, has penetrated every part of society, resulting in a rash of distracted driver incidents. Stronger litigation directed against companies employing drivers in commercial roles often results in multimillion dollar settlements.
  • Increasing numbers of truck crashes, many resulting in deaths or serious injuries, impose a financial toll on insurers, and also exact a human toll. Speeding is correlated with 30 percent of fatalities, a figure that active monitoring and driver feedback could reduce.
  • Changes in driver demographics, which are trending toward less-experienced drivers, contribute to overall risk.
  • Increases in traffic density make both short-haul and long-haul travel more difficult, contributing to a greater volume of accidents and a higher level of risk.
  • Infrastructure deterioration results in hazards on roads and bridges, often leading to accidents or vehicular damage.
  • Increased vehicle use and total miles driven affect both accidents and vehicle roadworthiness.

 

Loss severity is increasing in parallel with these loss frequency trends. Factors affecting loss severity include the following:

 

  • Rising medical costs increase claims whenever injuries are involved.
  • More frequent litigation is endemic in the industry, contributing to more costly settlements.
  • The rising cost of parts is resulting in more expensive vehicle repair bills.

 

Mileage Leakage : The total number of miles driven by fleet vehicles can be an insidious cost factor for insurance carriers. For every mile driven within a certain span of time, the overall risk rises. For example, as the economy surges, mileage leakage for commercial lines often occurs. Perhaps a company anticipated vehicles traveling 15,000 miles in a year and instead each vehicle covered more than 80,000 miles. The more miles driven, the greater the possibilities for collisions resulting from distracted driving incidents or other types of accidents. Every mile changes the vehicle’s condition, value, and safety.

 

Coping with the Distracted Driving Problem: Distracted driving due to smartphone use has escalated as a problem, particularly in the commercial sector where companies are liable for damages caused by drivers on their payrolls. A number of high-profile firms have become victims of this problem, with costly judgements against them because of their drivers causing accidents or deaths, including Coca-Cola ($21 million), International Paper ($5 million), and Dyke Industries ($20.9 million). These types of cases can be readily prosecuted because of the easy availability of smartphone records that can be acquired during the legal discovery process.

“As digital native competitors proliferate, established transportation companies must embrace new technologies and offer new services to keep up with their customers.”³ - Jeffery Elliot, et al., Strategy&

These challenges—though daunting to insurers—have led to deeper interest in commercial insurance telematics, including commercial usage-based insurance (UBI) programs. By deploying next-generation telematics technology solutions, insurers can readily acquire and analyze vehicle and driver data, harvesting information that is vital to addressing current problems and restoring profit margins.

 

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¹ “2017: Commercial Automobile Insurance – Fix Me, Please.” Conning. ’17. https://www.conning.com/products/insurance-research/publications-andsubscriptions/article/2017%20-%20Commercial%20Automobile%20Insurance%20-%20Fix%20Me%20Please/PDUM0217

² Milne-Tyte, Ashley. “Traffic climbed after the recession. So did accidents and truckers’ premiums.” Marketplace. ’17. https://www.marketplace. org/2017/07/06/economy/truck-drivers-face-higher-insurance-premiums-reason-more-traffic-roads-post

³ Elliott, Jeffery, Andrew Schmahl, Andrew Tipping. “2017 Commercial Transportation Trends.” ’17. https://www.strategyand.pwc.com/trend/2017- commercial-transport-trends