Commercial Auto Trends to Watch For

Whether they’re transporting materials and tools to worksites, hauling goods for deliveries or driving to meet clients—organizations of all sizes and industries rely on safe, functioning vehicles to serve their customers and generate profit. But, while utilizing a commercial fleet can offer numerous benefits, it can also create additional risks. As such, commercial auto insurance has become invaluable for any organization that operates vehicles as part of their operations.

Apart from securing commercial auto insurance, it’s important to stay up to date on the latest market trends. Doing so will allow your organization to take a proactive approach to both driver safety and fleet management. Don’t let your organization fall behind in this evolving risk landscape.

Market Challenges

For the past decade, the commercial auto space has been challenging and largely unprofitable for insurance carriers. In fact, according to a recent report from AM Best, the commercial auto insurance segment’s underwriting losses reached $4 billion in 2019—the worst loss the industry has seen in 10 years.

Various factors have contributed to this poor underwriting performance, including litigation trends, a wide range of driver safety failures, medical inflation, surging accident expenses and a deteriorating public road infrastructure.

In this environment, many commercial auto insurance carriers have elevated policyholders’ premium costs—with some policyholders even experiencing double-digit rate increases. Nevertheless, despite rising premiums, insurance carriers have not returned an underwriting profit for commercial auto lines in over a decade.

Unfortunately, industry experts predict that this hard market will continue to be a concern throughout 2021. In a hard market, employers like you may experience a more difficult renewal process by way of increased commercial auto insurance premiums, lowered capacity and more stringent policy requirements or restrictions.

However, these market conditions should not discourage you from securing adequate insurance for your organization. After all, keeping your organization and commercial fleet properly protected from potential losses is well worth the cost.

Distracted Driving Concerns

While many factors can lead to a crash, distracted driving is one of the most common causes of accidents, and—consequently—commercial auto claims. Examples of distracted driving include eating, drinking, applying makeup, texting or talking on the phone behind the wheel. Distracted driving reduces awareness, decision-making and performance—increasing the likelihood of driver error, near-crashes or crashes.

In fact, data from the National Highway Traffic Safety Administration indicates that, every year, up to 391,000 people are injured and 3,450 people are killed in crashes involving distracted drivers. As these incidents have become more prevalent, commercial auto insurance costs have climbed in tandem.

That being said, it’s important for your organization to enforce various workplace policies aimed at minimizing the likelihood of distracted driving (e.g., a policy on cellphone and portable electronics usage behind the wheel or a policy requiring employees to pull over at a rest stop in order to eat during their shift).

Additional Vehicles on the Road

According to industry experts, there are more drivers on the road than ever before. The Department of Transportation (DOT) reports that 286.9 million vehicles were registered in the United States in 2020, up from 284.5 million in 2019. Looking ahead, the DOT estimates that an additional 2.6 million vehicles will be registered in 2021.

Additionally, industry demand is on the rise, and drivers are logging added miles in order to make deliveries and meet employer demands. Together, this means a higher number of drivers will be on the road for longer periods of time, increasing the likelihood of accidents and subsequent commercial auto claims.

This rise in vehicles makes it all the more vital for your organization to encourage safe driving habits behind the wheel, especially in high-traffic situations. Be sure to remind employees that engaging in unsafe driving practices—such as speeding, tailgating or taking alternate/unapproved routes—to boost efficiency or complete trips faster is not worth the risk of being involved in an accident.

The COVID-19 Pandemic

At the beginning of the COVID-19 pandemic, many states enacted shelter-in-place orders. These orders temporarily reduced vehicle traffic, and, in turn, accident frequency. However, with fewer vehicles on the road, accident severity increased. Experts attribute this surge in severity to drivers engaging in risker behaviors behind the wheel (e.g., speeding or multitasking), motivated by the false security of less traffic.

What's more, due to the ongoing pandemic, many organizations have adjusted their typical operations to remain open—including extending delivery capabilities or hiring delivery drivers for the first time. For many organizations, these new services represent additional commercial auto exposures for their operations, thus increasing the likelihood of claims.

As such, make sure your organization reprimands employees who engage in risky behaviors on the road. If your organization has just begun implementing delivery services or recently hired new delivery drivers due to the pandemic, remember to fully assess the potential risks associated with these changes and implement measures to minimize potential damages (e.g., driver training programs and safe delivery protocols).

Elevated Accident Costs

As accidents steadily increase, their associated costs have unfortunately followed suit. In the scope of commercial vehicle accidents, the following factors have contributed to a rise in accident expenses:

  • Vehicle Repair Costs -- Although technological advancements (e.g., blind-spot cameras, backup alarms, GPS devices and telematics software) have made commercial vehicles safer and more efficient, the steep monetary value of these advancements can lead to higher repair costs in the event of an accident. According to a report from AAA, vehicles equipped with driver assistance systems often cost twice as much to repair as those that aren’t.

  • Medical Costs -- In general, medical costs have been rising over the past number of years. After an accident, injuries for all of those involved can vary in severity. It’s not uncommon for the injuries from an accident to require multiple doctor visits or even surgery, which can extend recovery time and influence overall medical expenses.

Due to the surge in both vehicle repair costs and medical costs, the losses associated with an accident have become significantly more substantial—leading to increasingly expensive claims.

This surge emphasizes how critical it is for your organization to prioritize accident prevention initiatives and establish effective post-accident investigation protocols to prevent future collisions on the road.

Litigation, Funding, and Nuclear Verdicts

Lastly, commercial auto claims as a whole have significantly increased in severity in recent years. Some key factors contributing to this issue include:

  • The Rise In Litigation Funding -- Litigation funding is when a third party provides resources to attorneys to finance a lawsuit. In exchange, the third party receives a portion of the settlement. This is becoming more common in commercial auto claims and often increases the cost of litigation overall, sometimes to as much as seven figures.

  • The Number of Nuclear Verdicts -- Settlement verdicts for bodily injury claims have been rising steadily. Specifically, nuclear verdicts—which refer to jury awards in which the penalties exceed $10 million—have become increasingly prevalent. As a result, attorneys are more inclined to go to trial. This extends litigation and significantly raises the cost to defend a claim.

To minimize your organization’s risk of experiencing such severe claims, be sure to regularly review all driver safety and fleet management practices for effectiveness. Make updates as needed.

You Are Not Alone

Partnering with a broker who understands your organizations unique risk profile is essential for surviving the hardening Auto market. Hawley & Associates’ specialized brokers apply innovative and tailored solutions to each situation, along with a deep understanding of the market and long-term relationships with insurers, ensuring our clients are fully prepared for any outcome. Contact us today!