Commercial auto hasn’t been profitable in years and there continues to be a lot of buzz in the media about its potential “rebound.” According to a recent article in Carrier Management, despite some improvements in pricing, there may still be some miles ahead for commercial auto on the road to true profitability. There are many uncontrollable factors attributing to this challenge – with accelerators of progress on one hand and some speedbumps on the other.
When it comes to positive factors impacting the commercial auto market and profitability today, the commercial auto market has trended toward strong premium growth since 2011 as rates continue to increase. However, this increase still leaves combined ratios above 100 across the industry and it remains to be seen to what extent the rate increases will offset the loss of profitability caused by the continuing rise in loss frequency and severity in the long run.
On the flipside, there are several negative factors impacting the commercial auto insurance market and its profitability – mostly tied to claim frequency and severity. Drivers of claim frequency include an increase in miles driven, more cars on the road, and inexperienced and distracted drivers. Claim severity is impacted by higher speed limits, increased vehicle replacement costs (VRC), and medical inflation (liability).
In the same Carrier Management article, W.R. Berkley Corp.’s president and CEO W. Robert Berkley Jr. states the following regarding this less than satisfactory trend in commercial auto, “’While people have…pored through the data, I’m not sure if anyone has a perfect answer’ as to how to solve the sector’s problems.”
We’ve recognized the issues in commercial auto for years and agree that there is no perfect answer. Yet there are opportunities to overcome these negative factors and help carriers achieve better profitability. We’ve worked hand-in-hand with our customers to identify their specific pain points, and have conducted several tests that show, despite the many negative factors affecting commercial auto, it is possible to profitably write this important line of business.
Using Data for a More Complete Picture of the Driver
It’s time to implement a new approach that gives you greater and more accurate insights about individual drivers and the businesses they represent. The use of better data and analytics can truly revolutionize commercial auto risk assessment and improve overall profitability. The driver plays an important role in the overall risk. There are a number of data assets that can help you better know your commercial drivers and improve your commercial auto profitability.
For example, there is the availability of data used for predictive modeling, which is comprised in part by consumer credit and public records data about the individual commercial drivers. Also consider the value of prior loss data that is comprised of commercial loss information, and, for some, even personal loss information. There is also motor vehicle information, in addition to other types of data that can supplement the (MVR). And then there is telematics data about commercial drivers and the overall fleet.
We will be speaking about this very topic and presenting the results of our studies at the 2019 NAMIC Commercial Lines Seminar on February 28th in Chicago in a session titled Know Your Driver: Commercial Auto Lessons Learned. During this session, we will address the following learning objectives:
- The true impact of individual drivers on commercial loss propensity
- The importance of prior loss history for assessing risk
- Cost/benefit analysis of data sources through real-world use cases that demonstrate how losses could have been avoided with better driver insight
Our goal is to support the continuous improvement of our customers in overcoming these challenges. If you’re attending the NAMIC Commercial Lines event, we look forward to seeing you there! If you will not be able to attend and would like to learn how you can embark on the road to better know your drivers and make the data on your drivers actionable, please don’t hesitate to reach out to me at email@example.com.