If owners of fleet vehicles could map the commercial auto liability insurance market on GPS, they’d see a lot of red on the road ahead of them. A combination of skyrocketing losses and sudden changes in insurers’ appetites are making for an unpleasant journey to find coverage.

These are unprecedented conditions in commercial auto. For the first time, auto liability is no longer following the overall trend in general casualty insurance. Now, insurers are looking at commercial auto risks differently, and many are deciding they can no longer underwrite this business the way they used to, if indeed they want to keep writing it at all.

Commercial auto liability is a relatively diverse class of business, comprising liability for business vehicles such as cars, vans, trucks and other types of commercial vehicles. Loss severity is a major driver of the changes in the commercial auto insurance market. Here are some recent examples:

In addition to plaintiff-friendly jurisdictions and jury awards such as these, fleet accidents are increasing, whether those accidents involve trucks or commercial passenger automobiles. According to Automotive Fleet magazine, which tracks U.S. fleets of 15 or more vehicles, the number of commercial fleet vehicles in service increased 5% in 2017, to 3.2 million. Improvement in the economy also has translated into more consumer goods transported by commercial vehicles. Significantly, distracted driving is an epidemic that also afflicts commercial drivers, despite fleet owners’ attempts to prohibit the use of cell phones and mobile devices. The American Association for Justice, formerly the American Trial Lawyers Association, has focused on distracted driving in its "Litigating Major Automobile & Death Cases" (2018-2019 edition).

BY THE NUMBERS

Statistics for commercial vehicles other than large trucks are hard to come by, but overall trends suggest the number of accidents involving all types of vehicles continue to remain high and, for large trucks and buses, is increasing.

The National Safety Council (NSC) estimates there were 40,100 automobile deaths in 2017, a 1% drop from 2016, but still 6% higher than in 2015. NSC estimates that 4.57 million people were injured seriously enough in auto crashes to require medical attention in 2017. Federal Motor Carrier Safety Administration (FMCSA) data shows that, from 2013 to 2016, the most recent year for which data is available, the number of injury crashes and fatalities where large trucks and buses were involved has risen almost every year. FMCSA does not track accidents involving vehicles weighing less than 10,000 pounds.

HOW INSURERS ARE REACTING

Going back to the 1990s and in some cases before then, insurance markets writing commercial auto risks tended to package those with other lines of business and evaluate them on a whole-account basis. For example, it was not uncommon for an insurer to package primary auto with workers compensation, property and inland marine. That approach often obscured results in specific lines, especially commercial auto liability, as better performance in one area offset underperformance in another.

From 1999 to 2010, the number of crashes involving large trucks and buses declined year over year, according to FMCSA. Since 2010, that trend has reversed, with crash frequency rising annually.

As the marketplace competed for business, excess and surplus lines insurers began to develop auto coverages with specialized endorsements, such as additional-insured forms for contractors. Primary auto claims costs and frequency started to increase at a time before insurers began widely using data and analytics in their underwriting.

After 2010, amid increases in loss frequency and severity, insurers began to sharply raise rates, pulling back from writing certain business or exiting primary auto altogether. In hindsight, primary auto liability turned out to be a loss leader for most insurers that wrote it. A market correction was inevitable.

Today, the tightest segment of the commercial auto market is in the middle. There are ample markets and capacity to support preferred risks — fleet owners with very low losses — and distressed risks. As a result, it has become much more challenging to find markets willing to write accounts that have a few losses. This is frustrating for retail agents and brokers, as well as firms with commercial fleets. For those that find markets willing to quote, many insureds are having “sticker shock” at renewal, with premiums doubling, in some cases.

WHAT RETAILERS CAN DO

When insurance market conditions tighten, the retail agent’s job becomes more difficult. Managing insureds’ expectations is challenging but necessary. Here are some things that retailers can do to help their clients with primary auto liability:

Communicate more. Most retail agents are reluctant to deliver bad news to clients, and that’s understandable. Strong relationships are built and nurtured by openness and clear communication about what’s happening, even when the news is less than ideal.

Discuss renewals sooner. The worst time for a retailer to confront a client’s unrealistic expectations is close to renewal. It’s advantageous to commence renewal discussions sooner, so the client knows what to expect, and the retailer has the time to explore more options in the marketplace.

Know the story. Understanding an insured's business, history and helping the insured to mitigate auto liability exposures will facilitate a stronger submission. The more information an underwriter has access to about a specific account, the better the chance of getting that account written.

BOTTOM LINE

It’s important for retail agents to keep their clients informed, allow plenty of time to complete renewals and gather as much information as possible about their accounts’ commercial auto exposures. In addition, to navigate the primary auto liability marketplace, seek an experienced partner. When you work with the right wholesale specialist, you can expect to gain insights and creative insurance solutions to help you manage your clients’ risks.

Contributors:

Stewart Brown is vice president and senior broker for transportation and casualty, based in CRC Group’s Seattle office.

Jake Blackshear is president of CRC Group’s Nashville, Tennessee, office. He specializes in commercial auto and inland marine.

Pete Feeney is regional director of SCU Transportation, a CRC Group company, in Scarborough, Maine.