Seven years of underwriting losses is enough
Commercial auto insurance is in crisis. We’ve been suffering through years of rising loss ratio, reaching 111.10% in 20171. While new written premiums have risen nearly $10 billion in that time, we’ve seen seven years of underwriting losses due to the severity of claims and rising litigation costs, according to a recent Fitch Ratings report.
Commercial Auto Underwriting Performance
The increasing risk exposure is putting more pressure on insurers to improve pricing and underwriting effectiveness. With strong economic growth, drivers are logging more miles. At the same time, there’s a shortage of experienced drivers at a time when fleets are growing2.
With inexperienced drivers on the road longer coupled with rising distracted driving incidents, it’s hard to see how we can return to profitability any time soon.
Choose a smarter path to profitability
You’ve got a choice to make as you seek profit in your commercial auto book. Raise base rates and risk alienating current and prospective clients. Or you can get smarter by using better data and technology to increase the sophistication of your underwriting and pricing.
Use the following tips if you seek to control costs and improve underwriting and pricing decisions with actionable data:
- Reduce your MVR expense
Don’t waste money on ordering MVRs to determine if a driver has a violation on their record. We’ve found that about 80% of drivers have a clean driving record3. Court record data is readily available for a fraction of the cost. Use court data first and order MVRs only on the drivers who warrant it.
- Use new driver information for fleet underwriting
Aggregated driver information and non-adjudicated violation data are available to help insurers improve underwriting and pricing. For example, we have seen insurers get a 200% improvement in risk segmentation by using new driver information4. Look for ways to use more data to build smarter predictive models for fleet driver underwriting.
- Include vehicle history in underwriting
Every vehicle has a different story. Two 5-year-old trucks, same year, same model may have different histories. One may have a branded title while the other may have a single owner and no damage. Vehicle histories are predictive of future losses. Add vehicle histories to your underwriting decision process.
- Adopt aggressive portfolio management techniques
Monitor, identify, and mitigate changes in risk. Profits are gained by thin margins in commercial auto insurance. Changes in risk can be one of your biggest portfolio exposures. Advanced portfolio management techniques are more available and affordable than what you may think.
- Reward companies actively engaged in preventing distracted drivers
Distracted driving is a growing factor in the number of trucking fatalities. Cell control and other devices are effective measures against distracted driving. Provide policy incentives to encourage clients to adopt technology and programs to help reduce distracted driving.
- Require telematics program participation
Monitoring driver safety and behavior electronically allows you to incentivize better driving habits. It can be beneficial for your customers and enables you to better understand the risk within a fleet. Make telematics a standard requirement for writing a policy.
- Maintain and enhance your fraud prevention strategy
The best defense against fraud is to stay on offense. Insurers face fraud from the application through claims process. The majority of insurers believe fraud contributes at least 5 percentage points to their combined ratio, according to a 2018 Forrester Research study. Fraudsters continue to evolve and so should your fraud strategy.5
Break the money-losing cycle with better data
Despite the challenges with profitability, there are ways that commercial auto carriers can bend the loss curve toward profitability. Relying on more comprehensive data and technology to the underwriting and pricing processes will give you a fighting chance.
It’s time to break the cycle of losing money on commercial auto policies. Relying on more comprehensive data to improve underwriting and pricing can make the difference.
1 Fitch Ratings (2018, July). US Commercial Auto Insurance Update. Retrieved from https://www.fitchratings.com/site/pr/10038461
2ATA Truck Driver Shortage Analysis 2015
3 Industry for standard book with a three-year lookback
4TransUnion aggregated results based on TransUnion internal study
5TransUnion commissioned Forrester Consulting to conduct the following study: Insurers: Strike the Right Balance between Fighting Fraud and CX (August 2018)