The quest for stability endures as
determined providers carry on
By Joseph S. Harrington, CPCU
If insurance underwriting were a reality television show, commercial auto underwriting would be cast as the ultimate challenge of endurance for the participants. Like haggard, sweat-soaked individuals scrambling to reach the finish line, commercial auto insurance providers, producers, and buyers stagger on in search of market stability that seems ever elusive.
The difference is, however, that while participants in an endurance trial can simply drop out, the need for commercial auto coverage remains, no matter how distressed the market is or how long the distress lasts. If anything, the need for coverage has increased since the pandemic forced many businesses to implement delivery service.
Even compared to recent experience, 2023 was a bad year for commercial auto, with its combined ratio reaching 109, despite several years of steep rate increases and tightened underwriting. In its March 2024 U.S. commercial auto Market Segment Outlook, A.M. Best said it expected profitability in the line to “decline modestly” during the year.
The reasons why buyers are paying more and providers are profiting less are by now well-worn: shortages of experienced drivers and mechanics, increased costs to repair vehicles (and delays in getting parts for repair), and skyrocketing jury awards to plaintiffs in bodily injury cases. If there’s light at the end of the tunnel, it’s very dim.
“The market has been and continues to be distressed,” says Nick Saeger, assistant vice president for transportation products and pricing at Sentry Insurance. Despite years of rate increases and increased underwriting scrutiny, Saeger says some estimates are projecting a roughly 110% combined ratio for the line in 2024.
“With results like that and the continued trend for significant loss severity—with some companies reporting double-digit increases in bodily injury severity—rates will likely continue to increase for several years,” he adds. “I expect risk selection to continue to tighten as well.”
Yet just as demand for coverage remains strong, so does the capacity to meet, according to Pete Feeney, CRC Group regional director, who finds that program managers and other intermediaries are stepping up to provide coverage when traditional insurers pull back.
“The market continues to be a challenge for both insurers and motor carriers,” Feeney says. “Insurers continue to increase reserves due to inflationary pressure on claim costs and nuclear verdicts. As a result, markets are pushing up rates on renewals and being very selective on new business.
“But when an account aligns with their appetite, insurers are aggressive on pricing.”
Data demands
Saeger and Feeney agree that systematic collection and analysis of data is fundamental to their commercial auto marketing and underwriting.
“Data is key to selection and underwriting,” says Feeney. “Vehicle telematics is a significant focus for all the insurance carriers we partner with. Insureds who embrace telematics are seeing the benefits in increased safety, better controlled claim costs, and premium savings.”
Saeger notes that “trucking offers insurers a wealth of data available to be used in pricing and underwriting when you have a strong analytics department like Sentry’s.
“The market has been and continues to be distressed. … [R]ates will likely continue to increase for several years. I expect risk selection to continue to tighten as well.”
—Nick Saeger
Assistant Vice President, Transportation Products and Pricing
Sentry Insurance
“It’s a similar story for our loss control team,” Saeger adds. “Its knowledge now incorporates telematics data collected through our partnership with Motive, an integrated operations management platform. That partnership is also yielding benefits regarding first notice of loss, providing more timely reporting of accidents as they happen.”
Given the benefits that he has seen from vehicle telematics, Saeger opines that “we’re still several years out” from the positive impact telematics can have on the commercial auto insurance market in general.
All the while, motor carriers and their insurers continue to grapple with operating issues that preceded the pandemic but were aggravated by it.
“A lack of highly trained, experienced drivers continues to be an issue,” says Feeney. “In addition, motors carriers are struggling with low freight rates as well as increased maintenance and equipment costs. Supply chain issues have now seemingly improved, but this puts increased downward pressure on freight rates.
“Data is key to selection and underwriting. … Insureds who embrace telematics are seeing
the benefits in increased safety, better controlled claim costs, and premium savings.”
—Pete Feeney
Regional Director
CRC Group
“These issues, coupled with higher insurance costs, are pushing smaller motor carriers to lease on to larger operations to maintain steady work,” he adds. “The operating environment seems to be favoring contract hauling, while carriers relying on freight load boards for work are suffering the most.”
Producer response
These challenges aren’t going away any time soon, so commercial auto agents and brokers are advised to encourage insurers and insureds to embrace data-based risk management through telematics and quantitative risk analysis.
“The best answer (for agents) is to be experts in the field … and work with insurers that have solutions tailored to the trucking industry.”
—Dan Clements
Senior Director, Transportation Sales, Underwriting and Market Development
Sentry Insurance
“Agents and brokers need to help their clients implement telematics and partner with insurers that are rewarding insureds for doing so,” Feeney says. “Motor carriers that do this are seeing improvements in driver retention and satisfaction.
“Also, diligent collection of underwriting information when developing submissions will greatly improve turnaround time, pricing, and terms and conditions.”
“The best answer here is to be experts in the field,” says Dan Clements, Sentry’s senior director of sales, underwriting, and market development for transportation. “We work with agents who specialize in providing insurance solutions for motor carriers, who know the products and coverages needed to keep them on the road.
“Likewise, our agents work with insurers that have solutions tailored to the trucking industry,” he adds. “That means having the right products but also extends to claims professionals who specialize in trucking claims, and safety consultants who are experts in the field.”
For more information:
CRC Group
crcgroup.com
Sentry Insurance
sentry.com
The author
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P&C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.