Let’s face it. The fleet auto insurance marketplace is taking a beating and business owners are paying the price. Recently, I saw a fleet insurance program take a 30% increase due to underwriting, even while experiencing minimal claims. This is a problem. Although most insurance rates generally softened in 2015 and are expected to stay the course in 2016, this is not the case with Commercial Auto. According to the article ‘4 trends that will shape the…market in 2016,’- “nearly half of all companies renewed with rate increases…There’s been a growing frequency and severity of Auto losses…causing that market to behave different from the casualty market...” It’s not just concerning for the direction of the industry trend, but more importantly for the fleet owner’s bottom line.
TRENDS: The number of auto insurance claims is increasing and claims are becoming more expensive. Claim costs have been climbing steadily over the past decade with average costs for injuries up 42% and repairs up 17%. For vehicle repairs following an accident, costs are at an all-time high due to sophistication of repairs and higher labor costs. In the past, claim costs had been offset by a decline in the number of claims filed – which helped keep insurance rates fairly stable for business owners. In comparison, now we’re seeing accident frequency increase which is resulting in higher costs and ultimately higher insurance rates.
So, what’s driving the increased number of accidents? The states experiencing the largest increase in accidents and resulting insurance claims attribute it to traffic congestion, distracted driving, increase in miles driven and changing demographics (particularly more senior or young drivers.) Another telling trend shows the increased use of marijuana contributing to the increase in accidents specifically in states that have approved marijuana usage.
RISK MANAGEMENT: Maintaining safe equipment and hiring safe drivers are not only the right things for a fleet from public perspective, but they are also the most cost-efficient strategies over time. After some newsworthy incidents in 2015 involving terrible truck crashes, public opinion is that those businesses with fleet auto exposure take positive action. Federal reform will occur -FMCSA Compliance, Safety, Accountability program enforcement is next in line and additional safety rules will follow setting entry-level driver training standards and increasing minimum insurance levels for motor carriers. Manufacturers are updating some of the basic components of vehicles pertaining to safety. Going forward we can expect some or all of the following: say goodbye to headlights and sun visors, vehicle to cloud storage data sharing allowing cars to ‘talk’ with each other about road hazards, heads-up displays so that drivers eyes never have to leave the road, windshield as world interface involving touch activation and sensors to alert on vehicles entering blind spots and lane departure warnings. Wiper blades may be replaced by windshields with specialized coatings to repel water, ice and oil.
Addressing public safety includes implementation of sound distracted driving laws such as text message and handheld cellphone use bans that are observed in congested traffic conditions. Strategies addressing these topics should become policy for fleet managers and included in all vehicle safety programs. The expansion of collision avoidance technology shows promise in reducing the kind of low speed accidents that occur mostly in dense traffic. Waiting for updates to safety technology or changes in law aren’t enough. Fleet owners must address these issues now to mitigate and control the cost drivers within their business. A good risk management partner can advise owners on best practices and implementation to make sure the policy is ‘sticky.’ Intentional hiring practices as well as management of claims and lawsuits will decrease the events that incur insurance costs as well as lessen the impact of occurrences. Business owners should work with their risk advisors to develop a strategy to track and influence cost drivers because ultimately, the owner writes the check and suffers the consequences. What’s your plan?