Spotlight on Commercial and Personal Auto
After several years of challenged results and rate responses, have Commercial and Personal Auto rates caught up with the trend? Industry loss ratios suggest that many carriers are still playing catch-up. With ultimate liability loss ratios above 70% and combined ratios several points above 100%, the industry still has work to do.
Recent surveys by The Council of Insurance Agents & Brokers (CIAB) indicate that strong price increases are continuing through 2018, but the gap persists. From our own analysis of the Commercial Auto (CA) and Personal Auto (PA) lines, the trend in bodily injury severity is growing and the business will remain unprofitable absent a broader approach. However, not all carriers are losing money on CA and PA - we see a gap of over 25 points in the combined ratios of top and bottom performers. Insurers that focus on the Auto line tend to outperform those who sell it as a supplemental product.
What’s making profitability so elusive? We observe several factors, most of which affect both CA and PA.
- Economic Recovery and Miles Driven - The improvement in the unemployment rate puts more cars and a worse mix of drivers on the road.
- Driver Shortages - The trucking industry estimates a shortage of over 50,000 drivers by year-end, which leads to reliance on inexperienced drivers entering the industry.
- Distracted Driving - Cognitive distractions and smartphone addiction have contributed to higher accident severity, with statistics often being underreported.
- Drugged Driving/Marijuana - Studies from Washington, Colorado and Oregon find that accident frequency increased in the years after marijuana was legalized, and more states have since enacted similar legislation.
- Escalating Repair Costs - Advances in vehicle safety systems, including cameras and sensors, have grown repair costs significantly.
- Litigation/Jurisdiction - An active plaintiff’s bar, restrictive medical records laws, cost shifting, and litigation funding can drive up settlement values substantially.
The adoption of advanced technology and analytics has not been so fast or far-reaching enough to counteract the severity trend. The reality is that many insurers, at least those not focusing on Auto, are not convinced if the investment will pay off. Some Auto specialists are selectively adapting available technologies and seem satisfied with the results. Others on the front lines of InsureTech are still struggling.
We expect insurers to continue with rate increases, but that alone may not be enough to move the dial. The solution begins with a foundation of good, old-fashioned underwriting through appropriate risk selection and analysis, adherence to guidelines, and price adequacy. Combine that with skilled, efficient claims-handling and settlement practices, and you’ll be on the road to profitable Auto Underwriting. If you would like to know more about our analysis and trend view, we’re happy to discuss.