5 Challenges commercial auto insurers must tackle now
Rising commercial auto rates are just one symptom of deeper issues in the transportation market.
The commercial auto insurance market has reached a critical tipping point.
Historically, our industry leaned on rate hikes to address the ever-increasing cost of claims, but this strategy is failing to keep pace. Rates continue to rise — anywhere from 3% to 8% for companies with clean claims histories, and up to 25% for those with riskier profiles. But no matter how high we push those rates, they will never increase fast enough to outpace the frequency and severity of losses.
As the pressure mounts, we’re seeing an alarming trend. Businesses, particularly smaller operators, may soon find commercial auto coverage unaffordable, forcing them to go uninsured — a scenario that puts everyone on the road at risk.
Education, risk management, sound risk transfer and litigation reform must be addressed in tandem. Without tackling these areas together, the commercial auto market will continue its downward spiral, and the consequences will be felt across industries.
Ultimately, rising commercial auto rates are just one symptom of deeper issues in the transportation market. Below are five key challenges impacting the state of insurance coverage and what we, as an industry, must do to mitigate their effects:
No. 1: Rising repair costs for modern vehicles
The rising cost of repairing today’s technologically advanced vehicles is a major factor driving higher insurance rates, affecting both insurance carriers who pay out claims and brokers advising clients on risk management. Modern vehicles are equipped with advanced sensors, cameras and other systems that, while improving safety, make even minor accidents costly to repair.
What can the industry do?
Brokers should encourage their clients to take a proactive approach, investing in driver selection and advanced training programs that mitigate risk and reduce the likelihood of accidents. For example, HUB Drive Online offers targeted training modules, ensuring that drivers learn best practices and safer driving techniques. Implementing proactive training will not only improve safety but also reduce the likelihood of minor claims that can drive up insurance costs over time.
No. 2: Increase in distracted driving
Distracted driving, largely due to mobile phones and in-vehicle technologies, is a growing concern for both carriers and brokers as it continues to drive up the number of claims. Despite state laws mandating hands-free devices, distraction remains a leading cause of accidents, and the consequences are severe, particularly for commercial fleets.
What can the industry do?
To combat this, businesses must enforce strict no-hands policies for drivers and integrate telematics to monitor compliance. Implementing telematics systems can provide real-time insights into driver behavior, allowing businesses to address distractions before they lead to accidents.
Additionally, educating drivers on the dangers of distracted driving and ensuring they have the proper tools to stay focused on the road is essential to reducing claims related to distraction. It’s crucial for brokers to emphasize the importance of these strategies to their clients as part of a comprehensive risk management plan.
No. 3: Rising costs of litigation for liability claims
Litigation financing and complex claims are driving up expenses, making it harder for businesses to manage risks effectively. Large liability claims can severely impact a business’s bottom line, especially in industries that involve high-risk driving scenarios.
What can the industry do?
Education and training are critical in mitigating the risk of liability claims. Additionally, brokers should suggest that clients consider outsourcing transportation risk by using third-party services like UberEATS or DoorDash instead of employing their own delivery drivers.
This transfers liability risk to larger corporations with deeper pockets and comprehensive insurance policies, offering businesses a layer of protection from potential claims. Risk transfer at the contract level between businesses and third-party providers is essential in limiting exposure to liability.
No. 4: Impact of poor claims history on rates
Poor claims history, particularly when large reserves remain open, significantly affects future rates. This creates challenges for both brokers and carriers as they work to manage their clients’ risk and keep premiums affordable. High premiums for businesses that experience frequent accidents or injuries can be devastating in today’s competitive market.
What can the industry do?
To reduce rates, brokers should educate businesses to actively manage claims and close them out as quickly as possible. Open reserves often lead to inflated premiums, even if the claims themselves have been resolved or dismissed. Proper risk management and timely claims handling can prevent this.
Additionally, companies should carefully assess their deductible levels. Opting for higher deductibles on non-injury claims can help manage smaller claims in-house and prevent rate increases from frequent, minor incidents.
No. 5: Frequency of small claims driving up rates
Frequent small claims, such as those resulting from fender benders or minor property damage, can significantly affect a business’s insurance rates over time. These small claims add up, and too many can lead to non-renewal or substantial rate hikes.
What can the industry do?
To avoid this, brokers can advise clients to consider higher deductibles for property damage claims. This strategy allows them to handle smaller claims internally without involving insurance carriers, which helps maintain a cleaner claims history and reduces the likelihood of rate increases.
Moreover, advanced technologies such as telematics can help monitor and improve driver behavior, reducing the overall number of incidents and keeping insurance costs under control.
Be best in class
As an industry, we must move beyond short-term fixes like rate increases and focus on sustainable strategies that address the root causes of rising claims. It’s not just about rates – it’s about managing risk smarter.
To be best in class, businesses and insurance professionals must embrace a holistic approach, combining education, risk management, risk transfer and claims handling to drive down costs and ensure the long-term sustainability of the commercial auto insurance market.
Mike Chapman is the national director of Commercial Markets and serves on global Top 5 insurance brokerage Hub International’s executive management team. He is responsible for the development and execution of claims best practices, product development, special projects, carrier management and M&A.
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