While underwriting losses have plagued the commercial auto insurance market for over a decade, the market is projected to continue to grow.
Underwriting losses have plagued the commercial auto insurance market for over a decade. Nevertheless, the market is projected to continue to grow, with the segment posting a 98.8% combined ratio in 2021 and positioned for similar results in 2022 supported by favorable earned premium growth and better reserve development, according to Fitch.
The demand for commercial auto insurance continues to rise because, simply put, the coverage is the first line of defense against an increasing number of road accidents. 2020 had the highest number of commercial auto driver fatalities since 2007, and casualties jumped by an additional 10.5% in 2021 and another 0.5% in the first half of 2022, according to The National Highway Traffic Safety Administration.
However, a convergence of factors has severely impacted commercial auto insurers' profitability over the past number of years. These factors—some of which have recently emerged, such as social and economic inflation, and nuclear verdicts—continue to add to losses in the market and justify rate increases.
“Many of the market players identify a need to get rate increases on renewals primarily due to continued profitability challenges," says Jennifer Nuest, senior vice president, transportation practice leader, Amwins, referring to social inflation, nuclear verdicts and the increased cost of vehicle parts and labor to repair those vehicles.
Other trends contributing to losses and increasing rates include “impairment behind the wheel and distractions from vehicle infotainment systems and mobile devices, as well as inexperienced drivers," says Dave Nelson, assistant vice president, commercial accounts group, Travelers. Additionally, “vehicle repair costs tend to be higher as newer vehicles are outfitted with advanced materials and technologically advanced systems designed to make driving safer," he adds.
Rates within the commercial auto market “are still increasing, with commercial auto rates in total increasing by 8.3% in the first quarter 2023, according to the CIAB," says Nick Saeger, assistant vice president, transportation product, pricing & underwriting, Sentry. “That's a 1-point increase from the fourth quarter 2022 and 2.4 points higher than first quarter 2022."
“Liability rates are a subset of that data point—and rates in that segment are increasing at an even higher clip," he adds.
But while “carriers see a need for rate increases, the marketplace is still very competitive," Nuest says.
“As insurance rates climb to certain levels, competition increases in segments where programs or carriers believe they can bring something different to the table that will help produce better loss results," agrees Mark Gallagher, vice president national transportation, RPS. “As a result, there have been several new entrants in that space these last few years."
And while new entrants may bring more opportunities for clients, it has also led to “more frequent switching of insurance carriers than we have seen even five years ago," Nuest says. “As a result, the marketplace continues to drive the behavior where clients are marketing their account every single year and potentially switching carriers depending on the relationship and the pricing offered."
In a somewhat chaotic marketplace, agents play a key role because they “understand commercial auto insurance and the complexities that go into it," says Devin B. Haughey, president & CEO, Fisher Insurance Agency Inc. “Most agents have a dedicated staff of experienced and educated producers and service representatives with a blend of experience, including both the insurance and trucking industries who stay up to date on Department of Transportation (DOT) requirements, trucking regulations and insurance coverage updates."
Partnering with carriers that specialize in commercial auto will benefit both the agent and the client overall. “Companies that have a specific focus on niche industries, like trucking, provide the most value for their customers," Saeger says. “That value comes in coverage forms that are designed to best serve the customer, claims service that specializes in the niche and safety consultants who understand the industry."
For this line of business in particular, “it's not if they have a claim, it's when they have claims and how many and how severe," Nuest says. “Agents really need to understand the ins and outs of the risk as that helps in presenting the insured in the best light possible to the underwriter."
Olivia Overman is IA content editor.