Commercial auto insurers fight malaise with digital
In relationships, there is said to be a "seven-year itch," which is the point when happiness begins to decline. For insurers, the relationship between commercial auto lines premiums and losses is under the stress of seven unhappy years. According to Fitch Ratings, “The commercial auto line (liability and physical damage coverage combined) has generated seven consecutive years of underwriting losses, with the industry statutory combined ratio rising to a 16-year high of 111.1% in 2017.” For insurers struggling to maintain portfolio profitability in commercial auto liability lines, it’s a state of crisis.
Two major contributing factors to mounting losses in commercial auto are the growth of larger loss incidents and an increase in damage awards. The acceleration claims frequency can be attributed to factors such as the attrition of experienced drivers, more vehicles on the roadways due to an expanding economy and lower unemployment, and an increase in distracted driving. Poor loss ratio also is connected to the increasing severity of accidents resulting from higher speed limits, more expensive repair or replacement costs of vehicles with advanced technology, and increasing litigation and settlement costs.
In a segment that represents 13% of U.S. commercial lines net written premiums, insurers increasingly are turning to technology to stem the tide of underwriting losses and regain profitability.
Technologies like telematics and video cameras as well as the data captured by these innovations are increasingly being used to address the crisis, allowing insurers to assess and price risk more accurately than ever before to support underwriting decisions and make commercial auto lines more profitable.
Next-generation telematics technologies provide insurers with an effective strategy to better manage commercial vehicle risk. The use of telematics is growing rapidly as implementation costs go down and insurers look to this technology to better understand how drivers perform. Currently, there are approximately 13 million GPS fleet management and driver behavior management devices used in commercial vehicles in the U.S., according to C.J. Driscoll & Associates’ 2019-20 U.S. Mobile Resource Management Systems Market Study. By 2022, that number will increase to over 20 million.
Cloud-based, onboard diagnostic port plug-ins allow insurers to gain insight into key driving behaviors, including hard braking, rapid acceleration, speeding, and hard cornering. By actively monitoring these and other driving practices, insurers can incentivize better habits and more accurately assess risk. Some companies are even using gamification with telematics—where drivers compete to determine who demonstrates the best driving habits—to help change driving behaviors and foster positive engagement with customers.
Commercial auto insurers also are partnering with telematics service providers to help establish monitoring systems and oversight of the technology and data analytics processes involved in capturing and evaluating vehicle operation information.
Insurers are finding that telematics technology is an affordable, effective tool for increasing the accuracy of pricing fleet behavior risk and assessing the spectrum of risk more accurately for each client, which helps carrier improve the profitability of commercial auto policies overall.
Onboard Video Systems
In-cab cameras can record driver- and road-facing video either continuously or as the result of a triggering event. A growing number of companies are deploying these systems in their fleets to promote safe driving among employees and protect themselves from false claims and litigation. This trend is supported by commercial vehicle insurers pushing for a broader roll-out of their use.
The National Transportation Safety Board (NTSB) has taken this a bit further by not only recommending the use of onboard video systems, but also the capture of all vehicle occupants (drivers and passengers), increased data capture standards, and development of guidance for installation and long-term maintenance.
Cameras that face forward and into the cab have the potential to lower premiums and claims costs for fleet owners by providing evidence that potentially could limit high jury awards, a key contributor to rising insurance costs. These cameras also can help fleet owners develop the continuous improvement of their drivers by indicating those who might need additional coaching, which reduces dangerous driving behaviors such as texting, cellphone usage, and driving without a seat belt.
Distracted driving is one of the major factors in the increasing frequency of commercial vehicle accidents. In 2017 alone, more than 3,000 deaths were caused by distracted driving, according to the National Highway Traffic Safety Administration.
In-cab cameras benefit drivers as well. Recordings from an onboard video system can be used to help exonerate a driver should a lawsuit after an accident occur. In states where fraud rings are prevalent, this kind of evidence is crucial to claims reduction.
For insurers, commercial auto accidents are among the most expensive for injury claims, with the average cost reaching approximately $70,000 of a loss related to fleet vehicle accidents, almost twice the cost of the average workplace injury. Camera technology can provide the increased insight into driver behavior that insurers need to more accurately assess risk and reduce losses from these claims.
Data-driven scoring models and programs
Commercial auto insurers are using analytics from telematics solutions to develop data-driven scoring models and programs that can improve driver behavior and better inform underwriting and rating. Event data reported by telematics systems identify risky driving behaviors like speeding, rapid deceleration, lane departures, and swerving to help insurers develop custom scoring models and cooperative driving programs aimed at reducing high-risk behaviors.
Telematics-driven scoring is highly predictive of risk and provides significant improvements to underwriting practices and results. Most of these scoring models use some element of driving behaviors and usage in their modeling to determine risk selection, pricing, and proactive loss control. In fact, insurers are working to boost the profitability of their commercial auto lines by shifting underwriting practices to more cost-effective, usage-based insurance policies developed using telematics solutions and analytics.
To get past the seven-year itch in commercial auto, the insurance industry must rely on technology to stem the tide of underwriting losses and get back once again to the happiness of profitability.