The road ahead may be opening up in the primary auto market after last year’s nationwide economic dislocation brought on by the pandemic. The trucking industry, in particular, endured months of turmoil amid massive shifts in demand as people nationwide began not only working from home—but also staying at home after work. In commercial auto, the shutdown-induced reduction in traffic congestion may have brought a decline in accident frequency. That would be welcome news for insurers in a market where the combined ratio overall has remained above 100 for a decade. (source vi)
The market is showing a bit more competition now after years of price increases brought on by soaring claims costs. So-called nuclear verdicts and “social inflation” mean that claims that might have settled for $50,000 five years ago may now cost ten times that amount today. Insurance rates are still rising into 2021, but more carriers are willing to look beyond best-in-class risks. At today’s higher prices, competition is growing for average and above-average accounts, but not enough to push prices down. Appetites, however, vary market-by-market. In such a rapidly changing market, experienced brokers can help clients reach the optimum results for their programs.
MOVING INTO A HIGHER GEAR
The trucking industry is still recovering from the pandemic-induced dislocation. As the economy skidded to a near halt, motor carriers that weren’t hauling essential goods had to park vehicles or drop them from their accounts. Truckers catering to the food service industry, for instance, saw demand crater in the early spring of 2020 as restaurants and workplaces were shuttered and remote work became the new normal for people across the country. At the same time, demand skyrocketed in the grocery industry which struggled to keep enough goods in stores. Package deliveries also soared as consumers relied more heavily on online shopping.
As motor carriers and commercial fleets parked or deleted vehicles, there was a high return of premiums across the board. Insurers worked closely with customers to both delete vehicles, and later in the year to add them as many customers adapted to the sudden market change and began growing their fleets again.
The second half of the year brought a sharp rebound in the economy and for motor freight and deliveries. Public auto remains a different story as ridership remains at sharply lower rates because of the shift to remote work. A sharp reduction in congestion on the roads has proved a benefit for commercial auto, bringing with it a reduction in accident frequency, although official numbers were not yet available. That was not the case for private autos. With fewer cars on the road, many individual drivers took the opportunity to drive much faster than normal,i bringing a sharp increase in speed-related deaths. The National Safety Council estimates that the number of deaths in motor vehicle accidents rose 8% in 2020 despite a 13% drop in miles driven.ii
In a segment that has seen continued losses, the results for 2020 look to be better than the combined ratio of 109 in 2019.vi Rising insurance costs have become an increasing problem for the trucking industry, where companies ranked insurance costs as the No. 5 concern, according to a 2020 report by the American Transportation Research Institute. The shortage of drivers ranked as the No. 1 concern, and the pandemic added to that as many drivers retired or left the industry over COVID-related health concerns.v Motor carriers and others have been struggling to find qualified drivers as they seek to get vehicles back out on the road and earning money. As insurers remained focused on reining in losses, driver quality continues to be a top concern.
Accounts in the wholesale space are still seeing upward pressure on pricing, with 5% to 25% increases in premiums, depending on the insurer and the territory. Insurers are pushing rates more aggressively in states including Florida, Georgia, New York, New Jersey, California, Texas and Louisiana. Accounts coming into the wholesale market from a preferred market may be facing increases of 50 percent over the expiring premium, depending on the pricing. Some incumbent markets that were reluctant to renew accounts near expiring premium levels, however, may be willing to write that business at sharply higher premiums.
Preferred accounts that are performing well are still enjoying more competition, although at the existing price range as the competition is not quite aggressive enough to push rates lower. Competition is also growing for average and above- average accounts in the fleet and non-fleet segment.
The primary market is not seeing the same capacity crunch as the E&S market, where carriers have grown much more selective and are often only willing to take smaller tranches of larger placements. In the standard market, some carriers are still exiting, particularly on a monoline basis, and some are only willing to write commercial auto as part of wider program including lines such as property, general liability or workers compensation.
On the primary side, insurers are fine-tuning their appetites on a market-by-market basis. Better-than-average risks are drawing the most interest. Medium quality range accounts are seeing improved availability, but not necessarily pricing. While capacity is available for more challenging accounts, they should expect higher prices. New ventures are still tougher to place.
Some markets are increasing their minimum premiums and also increasing the minimum number of power units, or in some cases, maximums. Underwriting has gotten more stringent, bringing demands for more information and more documentation with a particular focus on FMCSA scores or CAB reports. Looking forward, the insurance industry is increasingly relying on technology to improve both safety and risk selection.
TECHNOLOGY ENHANCES SAFETY
To improve safety and manage insurance costs, more fleets and insurers, are turning to telematics systems that monitor driver behavior, and are also adding camera systems that provide documentation of incidents. Such visual documentation can help significantly in reaching settlements or at trial. Data provided by telematics systems also enables insurers to better align pricing and risk selection. For insureds, the technology can make them more attractive risks and manage insurance costs even as it enhances safety. Philadelphia Insurance, for instance, reports that commercial auto customers using its telematics system have seen a 19% reduction in loss frequency compared with policyholders not equipped with the system.iii
Overall, telematics systems are helping to make fleet business more attractive to insurers as they improve loss ratios going forward. Camera systems are helping in claims settlements because the video can show mitigating factors, such as risky behavior by auto drivers that may have contributed to an accident. Even in the small delivery space, telematics may have an impact going forward as more delivery vans and courier operation include the technology on their vehicles. Online retail giant Amazon, for instance, has been reported to be installing cameras on its delivery vans.iv
Commercial auto customers should expect modest rate increases to continue over the next few years, but the use of technology such as telematics and cameras may help to moderate those increases. Some jurisdictions are looking at tort reform which may help insurers manage their losses, but insurers in general will remain focused on risk selection and stricter underwriting and keep pressure on rates. Amid the widely varying and fluid appetites in today’s market, experienced brokers can help clients find the most appropriate program. Contact your CRC Group producer for more information.
- Stewart Brown, TRIP is Senior Vice President & Senior Broker and CRC Transportation’s Southwest Regional Manager. He is also a member of the Casualty Practice Advisory Committee.
- Pete Feeney leads CRC Transportation as Regional Director and is located in Scarborough, Maine.
- U.S. roadways more lethal during pandemic, safety group says, Washington Post, May 20, 2020, https://www.washingtonpost.com/transportation/2020/05/20/us-roadways-more-lethal-during-pandemic-lockdown-national-safety-council-data-shows/
- Motor vehicle deaths in 2020 estimated to be highest in 13 years, despite dramatic drops in miles driven, National Safety Council, March 4, 2020. https://www.nsc.org/newsroom/motor-vehicle-deaths-2020-estimated-to-be-highest
- Telematics reducing accidents as crash death rates increase during pandemic, Philadelphia Insurance Cos., Oct. 19, 2020, https://www.phly.com/AboutPHLY/MediaRoom/2020/Telematics-Reducing-Accidents.aspx
- Amazon is putting cameras in its delivery vans and some drivers aren’t happy, CNN, Feb. 26, 2021. https://www.msn.com/en-us/money/other/amazon-is-putting-cameras-in-its-delivery-vans-and-some-drivers-arent-happy/ar-BB1e1qIW
- Critical Issues in the Trucking Industry – 2020, American Transportation Research Institute, October 2020 https://truckingresearch.org/2020/10/27/critical-issues-in-the-trucking-industry-2020/
- U.S. Commercial Auto Insurers Report Worst Losses in Decade: AM Best, Insurance Journal, June 30, 2020 https://www.insurancejournal.com/news/national/2020/06/30/573912.htm