Commercial lines insurers looking to the future may want to examine the commercial automobile insurance market. As commercial auto insurance is a highly fragmented market dominated by multi-line generalists and “multi-specialist groups,” it is indicative of the overall commercial lines insurance market, according to a new study by Conning Research & Consulting.

Commercial auto accounted for about 10% of the commercial premium and losses in 2009. While its results are important to the bottom line for many commercial insurers, it is also useful as a barometer for the commercial insurance environment, according to Conning’s study, “Commercial Automobile Insurance: The Multi-Specialty Road Ahead.” Trends can develop in commercial auto ahead of the broader commercial market because of its sensitivity to environmental conditions, such as the economy, and its relatively short-tailed loss development.

“Changes in commercial automobile results are important not only to the insurance groups with substantial premium written in the line of business, but also to insurers seeking to uncover developing trends in the broader commercial lines markets,” says Clint Harris, analyst at Conning Research & Consulting. “Principal commercial automobile industry segments, such as construction and trucking, are leading economic indicators for the general economy. As commercial auto liability losses generally develop more rapidly than other commercial liability coverages, this line of business is often a harbinger predictor of things to come for other commercial insurance lines.”

Commercial auto evolved as a highly segmented marketplace due to the specialized customer markets with substantial vehicle fleet exposures, and the need for risk management and insurance coverages to meet their needs, the report states. This caused specialist insurers and specialist independent distributors to define differentiated markets within commercial auto. However, an insurance industry trend continues to move many insurers toward multi-market insurance groups that include specialization in major and minor commercial auto segments.

“The multi-specialist market strategy approach, as described in our study, incorporates advantages such as superior underwriting expertise and focused customer and distributor relationships,” says Stephan Christiansen, director of research at Conning. “As a result, this model is expected to grow in market share. Diversification and ’group‘ return on capital needs can alter the dynamics of the specialty market segments. As expansion of multi-market insurance groups continues, opportunities for differentiated underwriting results among major commercial auto markets, historically enjoyed by focused specialists, are likely to diminish.”

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