The Story Behind Increasing Commercial Auto Insurance Rates

auto insurance rates

Commercial auto insurance rates have been on the rise since 2011, increasing often by more than 10% a year as accidents and claims costs have soared.

The trucking industry has been the hardest hit by the steep increases, and there are a number of factors contributing to the rate hikes, according to a recent study by Risk Placement Services. One of the biggest factors is that insurers have had trouble keeping up with increasing accidents and spiraling claims costs, leaving them in the red for most of the past decade.

Huge court verdicts, higher maintenance expenses, reduced freight demand, and poor infrastructure, compounded by an aging workforce and a driver shortage, have all resulted in higher insurance rates, according to the study. Here’s what’s in play:

Good drivers are aging and there are fewer of themHalf of all long-haul truck drivers are over 46 years old. The minimum age for obtaining an interstate commercial driver’s license is 21, and many insurers prefer drivers no younger than 24.

As the industry rushes to hire more drivers, who are often in their 20s, they have to contend with having more inexperienced drivers who are more likely to be involved in accidents.

Jury verdicts are huge, and growingThe number of transportation industry damage awards exceeding $10 million for injuries and property damage has been increasing since 2012. Claims for bodily injuries can sometimes take years to resolve, causing insurers to initially underestimate the eventual loss amounts.

High maintenance costsWhile advanced technology has made trucks safer, that tech is expensive to maintain, repair, or replace. The equipment is costly and mechanics with the technical skills to fix it can be hard to find.

However, poor maintenance makes accidents more likely and insurance more expensive.

Distracted drivingTruck drivers and those they’re sharing the road with continue looking at their phones, eating, looking at their navigation systems, and taking their eyes off the road with increasing regularity. This increases the frequency of accidents.

Crumbling infrastructureAmerica’s crumbling roads and bridges are increasing wear and tear on the trucks traveling on them, making accidents more likely.

Expensive cargo — The goods inside the trucks are also requiring larger amounts of insurance at higher rates. For example, shipments of electronics and medicine are magnets for thieves. And if a flatbed trailer carrying expensive machinery flips over, the cargo will likely be damaged beyond repair and the insurer has to pay to replace it.

Products like food, flowers, and some medicines must be refrigerated; if the driver makes a mistake, the entire lot may be ruined.

The takeaway

Because of these high costs, some companies are opting to forgo buying essential coverages such as excess liability (which can protect against those $10 million lawsuits) and cyber insurance. Modern vehicles are increasingly automated and are vulnerable to cybercriminals.

The Risk Placement Services report concludes that businesses with larger vehicle fleets, someone responsible for the safety and that hire quality drivers and practice regular maintenance, will find insurance more affordable and readily available.

For the rest, the rate increases will likely continue.

Commercial Auto Rates Face New Headwinds

Trucks, Route 66, California, USA

More accidents attributed to smartphone use while driving, coupled with much higher costs of repairs, have led to double-digit increases in commercial auto insurance rates over the past few years.

Distracted driving is just one of many factors that have converged on commercial auto insurance claims, resulting in sustained premium increases. Now there are new factors that are coming into play that will ensure that rates continue climbing, at least in the near term.

Commercial auto rates are increasing for companies with large fleets as well as for businesses with just a few vehicles and drivers. Here’s what’s at play and what you need to be aware of in the future.

Continuing factors

Distracted driving – This is the biggie. Starting a few years after the advent of smartphones in 2009, the steady decline in vehicle accidents and claims costs started to reverse when vehicular deaths started increasing for the first time in decades. The culprit, say many transportation safety experts, is distracted driving.

Repair costs – The cost of repairing vehicles has skyrocketed as cars have become more technologically advanced. A 2018 research paper by AAA found that vehicles equipped with advanced driver-assistance systems (ADAS) can cost twice as much to repair following a collision, due to expensive sensors and calibration requirements.

AAA cited the cost of repairing a car with windshield damage if it has an ADAS. The system uses cameras that are installed behind the windshield. These cameras need to be recalibrated after a windshield is replaced. This has increased the cost replacing such windshields to about $1,500, compared to $500 for a standard windshield.

Medical costs – Health insurance premiums and medical costs have been rising at a steady clip. Those increases carry over into the costs auto insurance companies incur when drivers and passengers are injured in an accident.

More miles driven – According to AAA, Americans are spending more time on the road. Driving more miles increases motorists’ likelihood of having an accident.

New and future risks

Weather-related property claims – A recent report in the insurance publication National Underwriter noted that commercial auto insurers say that the increasing frequency of large hurricanes, floods, hailstorms and wildfires are leading to higher auto physical damage claims. The number of property claims has been steadily increasing in the past decade as both the frequency and severity of major weather events grow.

Lack of experienced drivers< – As the economy expands, it’s become more difficult to find experienced drivers. Many experienced commercial drivers are retiring, and there are not enough job candidates with the skills and expertise needed to drive commercial vehicles.
The American Trucking Associations estimates that the industry is understaffed by more than 50,000 drivers, and this could increase more than threefold within eight years if current trends continue.

Security with onboard systems – As more vehicle functions become automated, new risks could surface from system failures that may result in accidents. There are number of technologies that come into play in new vehicles and a highly automated vehicle will rely on array of devices, including radar, light detection and ranging, cameras, graphics-processing units and central processing units.

How to Retain Your Fleet Coverage

As insurers continue tightening their underwriting for commercial auto insurance, they are inquiring about companies’ fleet management programs.

If a company lacks a program, some insurers are asking them to implement one if they want coverage. With this trend likely to continue as the number of traffic accidents and injuries continues to rise, it’s imperative for any company with a fleet – or even just a few vehicles – to identify opportunities for improvement and take any appropriate remedial action.

Areas to focus a fleet management program on include:

 

Driver training

One key element that’s often overlooked is senior leadership support, the lack of which can manifest itself in a variety of ways, including getting mixed messages from what is emphasized in training and performance feedback provided to drivers from supervisors. You should also:

  • Continually reinforce safety priorities in regular driver feedback.
  • Use annual performance reviews as training opportunities.
  • Have employees sign off on areas targeted for improvement or development.

 

Focus on distracted driving

If you have a fleet or any individuals driving for you, it’s of utmost importance that you have a strict policy for avoiding distracted driving. In your fleet manual, you should document that you continually reinforce rules on avoiding distracted driving.Focus on the use of hand-held mobile devices, the use of which increases the potential for accidents by 23%, according to the National Highway Traffic Safety Administration.

You have a choice to make:

  • Use technology-based measures, such as those used to prevent vehicles from starting when mobile devices are in use, or
  • Establish strict protocols on the use of mobile phones or other hand-held devices.

 

The latter may be sufficient in your case.

Tracking systems and litigation defense

Enhanced tracking systems, including video and telemetry, can help strengthen litigation defense, improve outcomes and reinforce training. Companies implementing telemetry systems with dash cams can verify what caused an accident. By using these systems, some operators have reduced litigation costs and court awards by 90%.

Logistics software

Logistics software can be used to enhance safety and improve efficiency in routing and job distribution. Even field vehicles can be equipped with shock sensors, operator requirements to complete inspections prior to movement, tracking and other features.

Review your coverage

On an annual basis, you should talk to us to ensure your insurance levels for drivers are adequate and appropriate.For contractors with fleet operations, commercial automobile insurance policies should have a minimum of $1 million in liability limits. Higher limits of $3 million to $5 million are typically required for transporting passengers or hazardous materials.

Driver screening and safety

Screen and monitor drivers by:

  • Obtaining an annual motor vehicle record for each driver with a points qualification system.
  • Administering DOT 7- or 10-panel drug tests with standard cut-off levels for pre-employment, random, reasonable suspicion and incidents that warrant testing.
  • Requiring that drivers complete online or in-person driving courses annually.
  • Requiring that drivers wear high-visibility reflective vests when outside the vehicle.
  • Identifying personal protective equipment for drivers in the right situation (plan for rain, snow, footing, etc.).
  • Supplying polarized sun/safety glasses to reduce glare.

Generally, from a risk management perspective, candidates applying for driver positions that have DUI offenses, reckless operations and suspended licenses are considered unacceptable, as are those with two tickets and one accident in a five-year period. Many firms try to keep drivers to below three minor tickets in a five-year period.

Incident management

All fleet drivers must be trained on what do after an accident. The top priority is to ensure all people are safe and taken care of. The next aspect is to collect all necessary information and take as many photographs of the accident as possible.

Subsequently, there should be follow-up to ensure everyone is safe and the incident report is completed correctly. Require that all incidents must be reported by the end of the shift, and set a 24-hour deadline for getting the claim into your system.

Inspections

Inspect vehicles prior to each usage. Pre-trip inspections typically include visual checks of tires and lug nuts, windshield, windows, wipers, lights and mileage.

Oil levels and tire pressure should be inspected weekly or more often, depending on weather conditions and vehicle utilization.