Making Sense of Commercial Auto Insurance Experience
For several years, Commercial Auto (CA) insurers have observed worsening loss ratios and searched for the root causes. Why are loss ratios up 5 points, and in some cases as much as 30 points, for so many carriers in this space?
We examined the combined average loss ratio of the 12 largest CA carriers in four sample states across the U.S. Here is what we found from 2014 to 2015:
Up 4.7 points. Up 8.8 points. Up 9.1 points. Up 10.5 points…
Within each group of the 12 companies, only one or two bucked the trend, having implemented rate increases in recent years. More are now in the process of seeking rate corrections.
The deterioration in results became obvious before 2014. Industry CA reserves developed favorably for several consecutive years through 2011, then turned adverse in 2012. The industry-projected 2015 AY loss ratio of 65.9 is not likely to hold. A number of Commercial Auto writers reported poor results in Q3. Continued deterioration is likely for 2016 as well.
Such a big jump in loss experience cannot be explained by one or even two causes. That is, we have not found a silver bullet. Based on our analysis, several industry, legal and regulatory factors are contributing to the trend in some degree, including:
- Driver shortage and turnover
- Increase in Vehicle Miles Traveled
- Super lawyers taking CA cases
- FMCSA safety data and scoring
In our view, commercial auto and especially truck risk segments are not equally affected by these factors. Loss experience, rate levels changes, and industry trends are not the same across all segments. We found some surprising answers when we dug into the CA data.
What awaits in 2017?
Increased levels of loss activity will continue to roil some segments of the market because the contributing loss factors largely remain in place. That puts pressure on insurers to solve for their CA loss ratios through underwriting and rates. Some carriers have already done this; others have not. The numbers for 2016 will tell insurers and the industry as a whole if we are on our way to solving the CA problem.