The Commercial Auto Market has proved challenging for businesses and insurance underwriters for the past decade. Unfortunately, due to the significant lack of underwriting profitability and the challenging environment, it is likely the market will continue to harden for the foreseeable future. To keep your premiums manageable and maintain adequate coverage you will need to work with an experienced insurance broker on your renewal.
Cause for the market hardening:
- Driver shortages: Since the pandemic, driver shortages have been a challenge for fleets across the country. According to the American Trucking Association, the number of open driving positions was at an all-time high in 2021 with 80,000 open positions. Due to the shortages, many companies have increased their number of inexperienced drivers which has led to an increase in accident frequency.
- Increased accident frequency and severity: With more inexperienced drivers on the road there has been a rise in accidents. The National Traffic Safety Administration confirms that more deaths have occurred on the road since the start of the pandemic, with 2020 recording the highest number of driver fatalities since 2007. Such fatalities jumped by an additional 10.5% in 2021 and another 0.5% in the first half of 2022 alone. Because of the increased severity of accidents, there has also been an increase in attorney involvement and the cost of claims.
- Nuclear Verdicts: Verdicts in excess of $10 million are considered "nuclear verdicts." These verdicts have been on the rise and are likely to continue with the aftermath of COVID, partly driven by the plaintiff's bar's effective use of social media to both find plaintiffs and to influence potential jurors. According to the Insurance Information Institute, nuclear verdicts and social inflation are responsible for driving up the cost of commercial auto claim costs by $20 billion over the course of the last decade.
- Litigation funding: is when a third-party investor covers expenses associated with a case in exchange for a portion of the settlement. In the past, attorney costs would scare plaintiffs away from taking a lawsuit to trial. However, a third party stepping in to cover expenses on attorney fees means plaintiffs can take cases further and seek larger settlements, thus drastically increasing the cost of litigation. As a result of these industry trends, the average jury award for a lawsuit above $1 million involving a truck crash, has skyrocketed past 1,000% over the past decade- from $2.3 million to $22.3 million according to the American Transportation Research Institute ATRI.
- Inflation: Car part shortages, more complex vehicle technology, rising labor expenses, and inflated used and new vehicle prices have also had a severe impact on the higher cost of commercial auto claims.
What does this mean for your policy
While many fleets have already experienced rate increases over the past decade there is no evidence to suggest that rate increases will be slowing down any time soon. These issues combined with various car part shortages, rising labor expenses and inflated used and new vehicle prices, have led to extended vehicle repair times and the additional expense of renting a replacement vehicle contributing to the surge in the overall claim costs.
Mitigation Strategies
While there are difficult challenges, businesses can take action to mitigate losses and reduce the severity of increases in their insurance premiums. Creating a culture of safety, enforcing safety policies and ensuring proper training are among the proactive steps that can make a difference. Working closely with your broker to make sure you have all the necessary coverage is essential to protect your business.
When building a culture of safety, consider the elements in your Fleet Safety Program: Ensuring internal policies are clear, easily enforceable, well-communicated and accessible at all times. Some examples of policies your company should have:
- Driver safety manual
- Drug and alcohol screening
- Cell phone usage
- Courteous driving
- Vehicle maintenance and security
- Personal use of company vehicles, use of personal devices and cell phones
- Crash response protocol and driver training
Driver Qualification and Training: To combat inflated claim values, a company needs to demonstrate proper hiring and supervision of its employees and gain the confidence of the underwriters to support a defense in case of a claim.
- Maintaining updated licensing records for all drivers
- Logging initial training and refresher training for drivers on company policies
- Enforcing remedial training if a driver is involved in a crash or traffic violation prior to returning to the driving position.
Telematics: Telematics is a method of monitoring and tracking your vehicles using GPS technology and onboard diagnostics to provide a blueprint of every aspect of the vehicle. Employers can utilize telematics tracking to lower their insurance premiums.
- Allows employees and employers to monitor driving habits and behaviors to detect flaws and areas for training opportunities.
- Software helps with maintaining your fleet by diagnosing engine issues and diagnostic concerns.
- To detect the location and route of any stolen vehicles, aiding in the recovery process.
- Your broker will be able to connect you to the resources available to your specific policy.
Leverage your broker
Every policy is different and will come with its own opportunities for risk management and improvement. Your broker will be able to connect you to the resources available to your company through your specific policy and any carrier loss control services which may be available to help you manage your fleet. Your broker can help you evaluate your return on investment for implementing a telematics program and advise if your carrier will provide an incentive to assist you.
Looking to learn more about how RBN can assist in your renewal process? Our experts are here to help you review your policies for the best coverage and the lowest premium rate.
