Commercial automobile insurance has been a trouble spot in the industry in recent years, and a multitude of factors have combined to create the problem. But technological changes such as driverless vehicles could help improve the sector’s performance, Conning said in a new report.
“The introduction of semi-autonomous and autonomous trucks holds the promise of vastly reducing accident frequency through its control of the most significant cause of accidents—driver behavior,” Conning said.
But first, how did the commercial automobile insurance sector devolve into its current struggles?
Conning’s recently released sector status report blames inadequate rates, an increase in miles driven from an improving economy, inexperienced drivers of commercial vehicles, more vehicles on the road, a jump in distracted driving involving private passenger automobiles, more aggressive lawsuits concerning truck accidents and rising medical costs for severely injured accident victims.
“This multitude of factors more than offset the positive impact of mitigating factors on losses, such as personal and commercial vehicles being equipped with new safety features,” Conning noted.
Commercial auto insurance had an eight-year streak of favorable results from 2003 through 2010, with the combined ratio averaging 94.9. That was more than 5 points better than the 99.4 average combined ratio for the performance generated by all lines of property casualty during the same period. But, as Conning pointed out, things changed abruptly at that point.
“Since 2011…the all-lines property/casualty combined ratio averaged 100.4, whereas for commercial auto it was 106.7,” Conning said.
The abrupt change, Conning said, came from all the aforementioned factors hitting at the same time.
The thing is, Conning also found that commercial auto insurers aren’t all being hit by this trend in the same way. Some still have continued to have combined ratios for commercial auto in the 90s and lower, even during the period where profitability changed overall. But others have seen their long-term combined ratio jump to 110 and even higher.
“On average, out-performers have had expense ratios about 8 points lower than under-performers,” Conning said.
Conning said it sees ways to improve the performance of commercial auto insurance in the months and years ahead. More complete underwriting will help, the firm said, as will better analysis and use of performance-related data. Greater use of telematics devices will also make a difference, Conning said, as will the use of driverless commercial vehicles to help reduce accident rates.
But it will be some time before this trend takes hold.
“It will be several years before this game changing technological development is sufficiently advanced and regulated so as to make a material impact on carrier fleets and commercial auto insurance results,” Conning said.
Conning’s study, in part, looked at the long-term results of the 100 largest commercial auto insurers, grouping them into quintiles. The full study is called: “Commercial Automobile Insurance: Fix Me, Please.”