Commercial Auto Insurers Look To Keep On Trucking

Just as with actual weather conditions, its tough to generalize about commercial auto. For this article, lets focus on a few of the stormiest states--such as Arkansas, Nebraska and Ohio--and explore a few of the issues that have contributed to such adverse underwriting experience.

For starters, take a look at the trucking industrys share of commercial vehicles in these states. Clearly commercial trucking constitutes a very significant proportion of the loss experience base used for ratemaking in states such as Arkansas and Nebraska.

In contrast, New Yorks and Nevadas trucking industries comprise relatively modest shares of each states total vehicles. (Nationally, for comparison, trucking accounts for a 5.5 percent share of commercial vehicles.)

Please dont get us wrong. Theres nothing inherently bad about commercial trucking. Just as rain showers are to nature, trucking is an important part of the commercial auto exposure base.

As with rain showers, however, even a good thing can cause big problems if it occurs too quickly. Indeed, a "downpour" of trucking growth is exactly what happened in Arkansas, Nebraska, Nevada and Ohio. In these states, commercial trucking employment--and with it, commercial auto exposures--expanded very rapidly over the past five years, averaging 2 percent-plus annual growth.

In contrast, the commercial trucking industry in other problem states such as Mississippi, New York and Oklahoma have had very modest--or even negative--expansion.

Truckings rapid growth can adversely affect commercial auto loss experience in a number of ways.

In states where trucking historically has been a modest part of the exposure base--Nevada, for example--the loss experience for long-haul trucking might be insufficient for credible rate making.

Moreover, any rate inadequacies stemming from insufficient credibility will tend to persist, and possibly get worse, for quite some time until commercial truckings share of the loss experience basis has grown sufficiently.

Another aspect of rapid growth is shown in the chart which pictures the share of commercial vehicles driven 20,000 or more miles per year in each of our "bad weather" states.

Its striking just how rapidly the share of high-mileage vehicles has risen in some fast-growth states--such as Arkansas, Nebraska and Nevada--over the past 20 years. In contrast, slow-growth states with a modest commercial trucking-share--such as New York--have experienced only very modest expansion in the share of commercial vehicles driven more than 20,000 miles per year.

Rapid shifts in vehicle usage patterns, such as those in Mississippi and Nebraska, caused recent loss experience to deteriorate significantly relative to the loss experience underlying the states current commercial auto base rates, and hence contributed directly to these states poor underwriting results.

High average miles driven per vehicle might deteriorate loss experience, but it only deteriorates underwriting results to the extent its a recent occurrence, and therefore is not fully reflected in current commercial auto base rates. For example, high average miles driven per se provides no reason to suspect that Nebraskas underwriting results were worse than Ohios (and, in 2001, they werent).

Even within a fairly stable state, vehicle utilization patterns can differ greatly from one industry group to the next, as shown in the graph on "Miles Driven Per Vehicle." Not surprisingly, average annual miles driven per vehicle is highest in the transportation, communication and utilities sector, reflecting the very high utilization rates that are typical in commercial trucking (Standard Industrial Code 421).

However, vehicle utilization also varies considerably among other industries, with a typical tractor-trailer rig in wholesale trade recording considerably higher annual miles driven than a similar rig in the construction industry.