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Why Are Your Commercial Auto Rates Increasing? 6/30/2017


By: Jeremy Sandusky, Partner, MMA-Southwest

From ready-mix suppliers and aggregate haulers to contractors with large automobile or truck fleets, businesses nationwide are seeing profit margins narrow because of escalating commercial auto insurance rates. The bad news is that the trend has no signs of slowing, given the myriad factors that are driving up costs. The good news is that companies can take proactive measures to reduce losses and mitigate risk.

The two primary factors driving auto losses are rising medical costs resulting from accidents, and an increased number of miles driven. Medical care costs increased at 1.5 times the rate of other Consumer Price Index expenses between 2006 and 2012, according to a report from the Bureau of Labor Statistics, and the inflationary pressures have continued to mount. What’s more, not only has the cost of health care risen, but injuries related to a car or truck accident tend to last longer, meaning more lost days of work and a greater impact on the bottom line.

Drivers also are logging more miles and at higher speeds. Whereas a maximum speed limit of 55mph was the norm a few years back, numerous major highways throughout the Southwest now post maximum speeds of 70mph to 80mph (which means drivers often go 85mph or more). Likewise, in Texas, the number of vehicle miles driven increased 4.0 percent year-over-year in the first half of 2016, the Federal Highway Administration reports, in part because gas prices have remained low. Of course, more time on the road equates to more accidents.

Loss of Focus
A related factor is distracted driving, which is having a severe impact on both personal and commercial auto lines. The number of gadgets beckoning for drivers’ attention, from cell phones to Bluetooth speakers and satellite radio, means people are focusing less on the road, and more on the technology that surrounds them. In fact, during daylight hours, more than 660,000 drivers across the country are using a mobile phone or fiddling with an electronic device while driving, according to data from the National Highway Traffic Safety Administration. As a result, eight people are killed and nearly 1,200 injured every day in the U.S. in crashes related to distracted driving, the Centers for Disease Control and Prevention reports. Not surprisingly, the number of distracted driving claims has skyrocketed, as well.

Higher Repair Costs
When an accident does occur, the cost of repairs puts additional pressure on insurance carriers, who pass on the expense to businesses in the form of higher premiums. Newer model cars, vans and trucks have more expensive parts, like rear-mounted cameras and side sensors. So, a small fender bender can end up costing thousands to repair. Add to that the impact of hail losses in Texas and other parts of the Southwest on these newer, more expensive vehicles, and the cost of claims becomes a significant problem for insurance carriers. In fact, the industry commercial auto combined ratio for Texas was 112.6 percent in 2015, more than five percentage points worse than the countrywide rate of 107.4 percent.

Strategies to Reduce Losses
Businesses that have drivers on the road can take proactive measures to help reduce the number and cost of claims and put downward pressure on rising commercial auto rates. The first line of defense is a good offense, which means hiring qualified drivers with a clean track record, and implementing a fleet safety program. Documenting the training requirements, maintenance schedules, mobile device use policy for drivers, and other safety program components provides a clear and objective reference resource and sets expectations for everyone involved.

Likewise, companies need to hold drivers accountable for safety. When one MMA-Southwest client found he was continually dealing with auto losses, he started charging employees part of the deductible. After the drivers had to put up their own money to cover the cost of claims and repairs, his losses went way down. The business owner also implemented a zero-tolerance policy for drivers who had been with his company for less than three years. If a driver had an accident during this probationary period, they lost their job. In short, safety is a culture, and it starts at the top. That means continually communicating to drivers that safety is one of the most important things in your company, so they begin to take it seriously.

Monitoring drivers with telematics can also help foster accountability. Tools like the Lytx Drivecam® video telematics safety program can help modifying driver behavior. For example, if the footage shows the driver’s tendency to continually slam on the breaks, he may not be paying attention while on the road—an issue that can be brought to the driver’s attention during a safety review. Similarly, telematics can help identify other risky practices, like speeding, cutting off other vehicles, and running stop signs, giving employers the opportunity to hold drivers to higher standards of safety. Drivecam footage of accidents can come in handy when filing a claim—including admitting responsibility and closing a claim quickly for accidents in which the company’s driver clearly was at fault.

Most major commercial auto insurance carriers offer helpful materials to guide loss control efforts, including model fleet safety plans, driver selection tools, and vehicle accident kits. By taking proactive steps to improve driver selection and training and promote a culture of safety, businesses can minimize losses from auto claims, while doing their part to keep premiums down and make our nation’s roads safer.

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.

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