2020 Focus Series: Commercial Automobile Insurance - Medicine for an Ailing Patient
Commercial automobile insurance has been ailing for more than a decade. This Conning Focus Series report analyzes the drivers of commercial auto’s continued underperformance. Many of the loss drivers are familiar to insurers. Others are less well understood. Many insurers have been taking measures beyond rate increases to address the performance issues. We believe that more attention needs to be paid to some of the less well understood loss drivers. Fixing the problems and restoring the line back to health will not be easy, and it will not be accomplished quickly. It will require focused attention, commitment, and time. However, it will be worth it, not only for insurers, but also for their customers in the commercial transportation sector, so critical for our economy and well-being.
Table of Contents:
Commercial Auto: A Line in Trouble
The Diagnosis
- How Bad is It?
- Rate Restoration: Too Little, Too Late
- Plaintiff Bar Makeover
- Exploding Medical Claims aka Medical Finance
- Fraud in Many Flavors
- Insurers and RRGs Wounded by Commercial Auto
The Cure
- Achieving Rate Adequacy
- Change Legal Strategy
- Combat Medical Finance
- Advocacy
- Technology
- Conclusion
Introduction
Commercial automobile insurance has been ailing for more than a decade. In contrast to other property-casualty insurance lines, which have delivered attractive combined ratios averaging in the low-to-mid 90s, the commercial auto combined ratio has averaged a troubling 107% since 2010. Since 2011, the commercial auto line has reported $22.4 billion in underwriting losses.
Insurers have been addressing this underperformance in the commercial auto line primarily with rate increases. Even double-digit rate increases, however, have not been enough to keep up with an ever-climbing loss trend. There have been more pullouts and failures in commercial auto than in any other line in recent years. Commercial auto specialists and RRGs (risk retention groups) have gone into receivership, and several multiline insurers with troubled commercial auto portfolios have had to perform major surgery on their book.
This Conning Focus Series report analyzes the drivers of commercial auto’s continued underperformance. Many of the loss drivers are familiar to insurers. Others are less well understood. Many insurers have been taking measures beyond rate increases to address the performance issues. We believe that more attention needs to be paid to some of the less well understood loss drivers. Fixing the problems and restoring the line back to health will not be easy, and it will not be accomplished quickly. It will require focused attention, commitment, and time. However, it will be worth it, not only for insurers, but also for their customers in the commercial transportation sector, so critical for our economy and well-being.
The COVID-19 crisis is having an impact on commercial auto liability loss activity from disruption in the normal courtroom cycle, which has put many trials on hold. More claims are being diverted to mediation and ADR (alternative dispute resolution) venues. We may not see trials as we know them for many months, so there will be see more eagerness to resolve and settle. This may depress loss numbers in the short term, but ought not confer a sense of security because it will be only a temporary phenomenon.
This report incorporates insights gleaned from in-depth interviews with more than 20 subject matter experts with deep knowledge in commercial auto insurance and related fields. To obtain a holistic view of commercial auto loss trends, the experts consulted included trucking defense attorneys, truck accident plaintiff attorneys, commercial auto MGAs (managing general agencies), insurance company C-suite executives, commercial auto underwriting managers, claims professionals, actuaries, data analytics providers, and government regulators. These discussions complemented quantitative analysis of commercial insurer and RRG results, as well as detailed review of public and private company disclosures.