Commercial Auto Insurance: Hazardous Conditions Ahead

February 16, 2021

If you’re looking for good news regarding Commercial Auto Insurance, consider this: Technological advances are increasingly available to monitor driver behavior and enhance vehicle safety.

And that’s about it. Amid a hard Property and Casualty Insurance market that includes sharply escalating rates for Commercial Auto coverage, carrier discounts based on various driver and vehicle metrics can provide some relief to businesses whose very existence may be at risk.

Beyond that, Commercial Auto presents a harrowing landscape that includes:

In addition, another prime contributor to the overall P&C hard market, catastrophic weather, has been leaving its mark on the Commercial Auto market, most dramatically in a crash involving more than 130 vehicles and at least six deaths near downtown Fort Worth, Texas, last Thursday.

Nuclear Verdicts and Commercial Trucking

But the greatest driver of the need to cut costs through risk management-related discounts may be a phenomenon affecting multiple industries and lines of coverage: nuclear verdicts in liability lawsuits.

In one industry, the impact of such court judgements has been so great that the American Transportation Research Institute (ATRI) published an 82-page whitepaper about it: “Understanding the Impact of Nuclear Verdicts on the Trucking Industry.” ATRI’s research revealed that in lawsuits resulting form truck-involved crashes, the number of plaintiff-favored judgements of $1 million or more rose from 79 in the years 2005-2011 to 265 from 2012-2019. The average size of plaintiff-friendly judgements, meanwhile, escalated from about $2.3 million in 2010 to $22.3 million in 2018.

As a result of such losses, the Wall Street Journal reported in January 2020, “The costs are weighing on trucking companies of all sizes, with some smaller operators that shut down recently citing insurance as a factor in their demise.”

ATRI concurred, noting that one smaller motor carrier saw its single-year rate more than double – from $340,000 per year to $700,000 per year.

“This cost increase ultimately forced the motor carrier out of business, putting more than 50 employees out of work,” ATRI noted. “Other fleets, many belonging to decades-old family businesses, experienced similar outcomes.”

Outlook Heading into 2021

Here’s the landscape for the public sector as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:

► The industry is signaling its need to rein in declining results within the Commercial Auto market that are being driven by 10 successive years of underwriting losses, culminating in a $4 billion loss in 2019.

► Fleet rates are poised to increase between 10% and 20%, with large fleets facing greater increases, higher deductibles and lower limits.

► Underwriters will be influenced by an account’s loss history, drivers’ background checks and driving records, fleet maintenance and use of commercial vehicles. Long-haul, heavy construction and local delivery operations will be most closely scrutinized and more difficult to place in most markets.

► Contributing causes of loss performances and the resulting need for price increases include:
  • Underpricing and under-reserving for prior losses.

  • Higher accident frequency and substantial increases in loss severity.

  • Rising medical costs and loss adjustment expenses.

  • More inexperienced drivers.

  • Deterioration of highways and road infrastructure.

  • Distracted driving and sleep apnea, as 43% of the workforce identify as being sleep deprived.

► Increased use of delivery services.

Among lines of coverage, General Liability, Property and Umbrella/Excess looked to be trending against insurance buyers, with rising rates, limited availability, restricted capacity (reduced limits, additional exclusions), and increased underwriter scrutiny and selectivity.

To obtain the entire Property & Casualty 2021 Market Outlook whitepaper, click the link below.


Broader Implications of ATRI Findings

While the American Transportation Research Institute report focuses on the trucking industry, its findings have implications for all drivers of commercial vehicles. Foremost among them: Factors that influenced nuclear verdicts were within either the employer’s or the employee’s control.

Among the hundreds of cases ATRI examined, five specific factors brought against a defendant resulted in 100 percent of verdicts favoring the plaintiff:
  • Hours-of-service (HOS) or log book violations

  • Lack of a clean driving history

  • Driving under the influence of a controlled substance

  • Fleeing the scene of the crash

  • Health-related issues.

The rate of verdicts favoring the plaintiff were also extraordinarily high, 91.7 percent, in cases citing two other factors: sleep/fatigue and driver phone use.

“As a result,” ATRI concluded, “motor carriers have fewer options for purchasing full coverage to protect their balance sheets. Consequently fleets continue to accrue increased risk (e.g. higher deductibles, less coverage) to mitigate costs … To offset this increased risk and fearing nuclear verdicts, motor carriers have generally increased their focus on safety and hiring practices.”

What You Can Do

Catastrophic weather, social inflation and vehicle repair costs may be beyond your organization’s control, but safety and hiring practices are not. Here are some best practices to follow:
  • Do due diligence in hiring, provide your staff with training that exceeds government standards, and reinforce best practices.

  • Document, document, document. Keep thorough records of training programs, driver hours and mileage, maintenance procedures and any driver-related incidents.

  • Train employees on reporting a claim immediately after an accident or act of vandalism.

In addition, work with an agent or broker who knows your industry and region. A knowledgeable agent/broker can design a customized program, matching your organization with a carrier whose strengths meet your needs and ensuring you receive any available discounts.

Finally, make sure you’ve protected your data – and that of your clients – by attending Alera Group’s April 28 webinar, “Cyber Security: What to do Before and After a Breach.” Cyber criminals are more organized, sophisticated and active than ever before – to the extent that there isn’t a question of whether your business will experience a breach but rather of when it will happen. Join World Synergy Chief Solution Officer Matt Jones and Security Principal Gunner Wagh to gain a better understanding of how your organization should be handling cybersecurity.


About the Author                             

Brenton Kidd, CIC

West Texas Insurance Exchange

Brenton Kidd is a multi-line producer for West Texas Insurance Exchange, Inc. His expertise is commercial insurance, with a focus on medium to large accounts, particularly in the oil and gas industry. Licensed to sell Property and Casualty Insurance, Brenton earned his Certified Insurance Counselor (CIC) designation through the National Alliance for Insurance Education and Research in 2019.

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