Commercial Auto Rates Continue to Rise

If your company has commercial auto coverage, you have very likely seen a rise in cost on that policy every year over the past several years, no matter what carrier you are using. Business owners are sometimes surprised to find that these increases bridge all industries and all carriers, and have very little to do with your particular company’s claims history.

The commercial auto industry has been seeing quarterly rate increases pretty steadily since 2011. Though insurance rates in general increase over time, the increases have been much more aggressive on commercial auto policies than on other P&C policies (such as work comp, general liability, etc).

When an insurance company sets rates, they have to make sure the premium coming in for the policies written exceeds the dollar amount the carrier will pay out on claims, as an overall combined amount through all customers. This is not an exact science, as the carrier can never know which clients will have claims and how much those claims will be for. So over time, rates go up or down based on actual claims data in an effort to improve rate adequacy and set the right dollar amount to address the risk. Therefore, when overall claims and losses increase, rates must go up.

It is thought that over the past several years, much of the commercial auto industry has been too slow to react to increased claims/losses with their rate adjustment. So now, over the past couple years especially, we see those insurers playing “catch-up” to bump their rates up to the appropriate point to address the current climate. The increased loss ratio in the industry as a whole is startling. In 2016 for example, there was $2.9 billion in commercial auto underwriting losses in the U.S. This is due to several factors:

1. There are more vehicles on the road and more miles overall being driven as Americans go back to work with the economy bouncing back since the recession
2. An increase in distracted drivers, due to the above and other factors that are pulling driver attention away from the road
3. Rising vehicle repair costs and medical costs
4. Larger court settlements
5. In certain industries, insufficient training. For example, as it becomes more difficult to hire truckers, companies end up hiring younger and less experienced drivers with less training, which arguably increases overall accidents/claims.

The industry as a whole believes that soon, the “catch up” on rate increases will slow and this will level out. But, unfortunately, we are likely to see at least a few more quarters (if not a few more years) of rate increases first.

In addition to increasing rates, underwriters are also narrowing what policies they will write. They are being more particular about risk overall, and some carriers are stopping writing entire industries for commercial auto. Some carriers are even exiting commercial auto all together, which actually strains the remaining marketplace further as brokers search for coverage for non-renewed clients.

As a business owner, there is not much you can do to confront this if you have the need for commercial auto insurance. Some very large companies are partially self-insuring, but for the small business owner this is not an option. This is an issue that affects all industries, and the only solution is for commercial auto claims to drop as a whole, across all insured companies; which requires more training, and safer, more focused driving by employees.