Tough Times Get Tougher for Commercial Auto Insurance

Myriad elements have combined to affect today’s Commercial Auto Insurance market, ranging from increasingly extreme weather to the number of cars on the roads. These factors have created one inevitable conclusion: Commercial Auto pricing will again increase by double digits in 2024. 

 Here are some of the reasons for this not-so-rosy outlook: 

• Extreme weather: We’re seeing more powerful and more frequent storms, especially in California and Florida. In California, the increasing frequency of storms, forest fires, earthquakes and other extreme weather has led to more weather-related claims, which has created higher costs. Similarly, the hurricanes that have been bombarding Florida and other parts of the South also lead to auto coverage issues. Hurricane Ian damaged more than 350,000 Florida cars in 2022, according to one report. The end result is a shortage of carriers willing to provide coverage, which affects Commercial Auto Insurance costs nationwide.
• More crowded roads: Automakers sold almost 4 million new cars and trucks in the third quarter of 2023, up about 17% over the same period from the previous year, according to J.D. Power. Meanwhile, 43% percent of our country’s 4.2 million miles of road are in poor or mediocre condition, according to the American Society of Civil Engineers. The resulting math is simple: More cars on worse roads equals a higher likelihood of accidents, creating higher premiums. 
• Worse driving: If you feel like people are worse at driving since the pandemic — well, it’s not your imagination. Car crashes claimed nearly 43,000 lives in 2022, an 18% increase from 2019, according to the National Highway Traffic Safety Administration (NHTSA). The number of crashes in the United States soared 16% from 2020 to 2021, the NHTSA found. The reasons vary from behavioral changes after the pandemic to other factors, but the bottom line is that people are getting in more accidents.  
• More expensive auto repair: The technological advancements in today’s cars also lead to higher repair costs when accidents happen. There are higher costs that come with fixing broken technology, but the tech also requires more precision throughout the car. For instance, the thickness of paint on a car bumper must be just right in order for the sensors to work properly. Features such as auto emergency braking, lane-keeping assist and cross-traffic alert systems resulted in  car repair costs rising almost 20% in the past year, according to the Consumer Price Index — more than six times the national inflation rate.  
• Higher medical costs: When accidents happen, the resulting medical costs are higher than ever. Healthcare costs have gone from 5% of the GDP in 1962 to 17% in 2022. One study predicted a 7% rise in medical costs trend in 2024, which is higher than the medical cost trend in 2022 (5.5%) and 2023 (6%).   

These factors illustrate that Commercial Auto rates are extremely vulnerable to external variables, trends and market forces. Taken together, rates for clients with average risks will experience a 10%-15% increase, “while marginal risks with poorer claims experience will likely see 20% or more added to their insurance costs,” according to Alera Group’s 2024 Property and Casualty Market Outlook.   

This situation could drive some organizations away from standard insurance carriers: “For some businesses, coverage will only be available in the nonstandard market,” the Alera Group report notes.  

Effects on underwriting 

As a result of these increases, the carrier loss ratios for today’s companies are bad and getting worse. In the trucking world, for instance, insuring a tractor-trailer used to cost between $2,000 and $5,000. Now, we’re seeing costs that are reaching up to $15,000 per unit. As a result, trucking companies are running especially thin because their costs are skyrocketing.  

Looking at these results, it’s clear to see the impacts on underwriting in Commercial Auto.   

“The underwriting process will require patience,” Alera Group’s Market Outlook reports, because it will “require extra lead time for new accounts. Insurers will typically request supplemental questionnaires, inspections and DOT ISS scores showing the ratio of violations to miles driven, accidents, etc. The complexity of each renewal will be based on a risk-by-risk evaluation.”  

The report continues: “Underwriters will carefully consider the business’s financial strength, drivers’ experience, driving records, maintenance program, condition of equipment, routes driven and claims experience.”  

How to alleviate high costs  

One way for businesses to address these costs is to increase safety training for their drivers and institute rules in obvious areas, such as mandating seatbelts, increasing cold weather training and creating cellphone policies. The growing popularity of driver and dash cameras can also make an impact, providing insight into a driver’s ability and removing doubt from accident situations. 

Another way customers can contain their expenses is by joining or creating a captive program, and we’re starting to see a lot of more organizations looking to go into captive-based programs that can provide coverages including Workers, Compensation, General Liability and Auto.   

But essentially, prices will largely be what they are. So it’s critical for companies to be transparent and let clients know where rates stand. They should be upfront and inform them that rates are rising and their costs will simply be higher as a result.  

For a more in-depth look at strategies for navigating P&C market conditions, check out Alera Group’s 2024 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current market, along with analysis categorized by industry and lines of coverage.   

A qualified agent or broker can help you navigate this complicated world with thorough, clear documentation of risk management programs, claim histories and financials. To contact an Alera Group agent or broker, click on the link below.   

CONTACT AN ALERA GROUP SPECIALIST 

About the Author  

Jim Breck 
Director, Commercial Lines 
Alera Group Midwest  

Jim Breck has almost 30 years of experience in property and casualty insurance, beginning as a claim adjuster and including producer and executive roles at multiple companies. He has been a member of Alera Group since 2020, first as Director of Commercial Lines first for our Chicago office and now in that same position for our Midwest region.   

Contact Information:  

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