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Hard Road: Tightening Capacity in Commercial Auto

After a rough ride in 2018 and 2019, the commercial auto market is continuing to harden, with more rate increases, stringent underwriting and greater scrutiny on renewals.
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After a rough ride in 2018 and 2019, the commercial auto market is continuing to harden, especially in the transportation and trucking segments where capacity is tightening.

Agents are witnessing yet more rate increases, stringent underwriting and greater scrutiny on renewals, “which has produced more nonrenewals or changes to terms, including higher deductibles or lower limits offered,” explains Mike Miller, commercial lines business leader at Progressive. “We are seeing stable rate activity in filed future rate take, so we expect the market to remain hard for most of 2020.”

Factors driving market conditions include degradation of the tort environment, nuclear verdicts and social inflation, which is driving severity trends towards historically high levels. Some of the “frequency is impacted by continued low unemployment putting more people on the roads and a strong economy, especially in construction and housing,” Miller says.

“We are watching truck tonnage and manufacturing closely for signs of weakness that may impact some commercial auto segments,” he says.

Other factors driving up rates are distracted driving, the increasing cost of repairing vehicle technology and more sophisticated underwriting techniques that consider more data points than ever before.

“The rates are ever-changing numbers and you cannot predict what the range of the premium might be because the carrier is looking at so many additional and diverse driving ratios,” says Joyce Sigler, systems intelligence manager at Jones & Wenner Insurance Partners in Fairlawn, Ohio. “That’s really tying the agency’s hands to make valid assumptions about the renewal market and new business.”

In commercial lines, auto used to be the “stabilizing force” on a commercial account, but now carrier appetites have veered away from the auto portion, explains Sigler, who is also president-elect of the American Insurance Marketing and Sales Society.

“Carriers no longer say, 'Could I get the auto?' Now they're saying, ‘Can I have the property? Can I have the liability? And then I'll take the auto,” Sigler says. “We're at a point where those old tried and trues are no longer old tried and true anymore.”

As the driver shortage affects the supply of services, new businesses appear to have seized on the opportunity. “New business applications are at a record high, impacting small business auto and contractor risks,” says Miller. “Finding coverage for new ventures can be challenging for an agent but very appealing from a new prospect perspective. Every agent should have a go-to new venture market because this segment is shopping for an expert to help them find the right coverage to insure their dreams.”

Agents can demonstrate their value by embracing data and information to help customers understand their business and how insurance companies and underwriters are going to utilize publicly available data like SAFER (Safety and Fitness Electronic Records), a database for truckers that includes motor vehicle record data for drivers and telematics, to evaluate their insurance risk. “Many of these elements are controllable and discussing the impact to customers should get their attention,” adds Miller.

But while data can be a driver’s greatest ally, it can also create issues, which is another area agents can prove their worth. For example, if a driver is looking for coverage but has a claim on their record, “we try to prove this shouldn’t go against our drivers,” Sigler says. “We are now spending more and more time looking at a driver's motor vehicle report and digesting what truly happened to advocate that our risks are better than how they look on paper.”

Additionally, the hard market may drive businesses to try to reduce coverage or limits to lower their renewal premium. “Make sure the insured is aware of their options” and “regularly review policies to ensure the coverages and specifics, such as drivers and vehicle values, are up to date and account for any changes in the business,” Miller says. “In cases where there is a claim, educate them so there aren’t any surprises on either side—be it with unlisted drivers or insufficient coverages.”

Will Jones is IA managing editor.