More claims, higher settlements put pressure on liability insurance rates
Increasing accident exposures and higher costs of claim settlements have kept insurers of commercial auto liability, including the motorcoach industry, from breaking even since the beginning of this decade. Industry rating services predict that some insurers may need further premium increases for passenger transportation coverage.
“Despite rate increases in 23 of the last 25 quarters, the combined ratio topped 111 percent in 2017. This line has been a weak spot for many insurers, forcing them to reduce writings, trim their portfolio and in some cases exit writing monoline auto altogether,” reported the trade magazine Carrier Management.
Despite continuing premium increases, the industry experienced only a slight improvement in 2018 in combined ratio, which is calculated by dividing total claim losses by paid premiums. Claims in 2017 totaled 111 percent of premiums paid for commercial auto liability (CAL) coverage across the industry.
Losses in the bus and motorcoach segments may be leading the trend, said Michelle A. Wiltgen, assistant vice president and national marketing manager at National Interstate Insurance Company in Richfield, Ohio. “The auto liability line has been running at a loss for the better part of the last 10 years with the unprofitable results beginning with a 103.6-percent combined ratio in 2011.
“With respect to the insurance companies that write auto liability for the passenger transportation industry, my sense is that many of them are doing much worse than 111 percent. We are seeing this as companies are having their A.M. Best ratings downgraded and some insurance companies are making the decision to not write passenger business at all because they can’t do so profitably,” she said.
Insurers are facing increases in loss severity and higher claims for medical costs and property damage, particularly for more expensive parts and labor for vehicle repairs. Auto liability underwriters face “unrelenting economic and social forces that are negatively impacting our business,” said Tim Hathy, vice president of public transportation for RLI Corporation, a specialty insurance company in Peoria, Illinois.
“Several years ago we recognized some of the same changes experienced by the general commercial auto insurance market: Growing frequency and severity trends and time to settle liability claims, increased litigation of claims and increased vehicle utilization,” he said. “Our specific niche, passenger transportation, is particularly impacted by growing attorney involvement in soft-tissue claims.”
Also, he said, the industry faces “increased reinsurance costs as our motorcoach customers are often targeted due to the $5 million auto liability limit they are required to carry.”
Industry analysts expect continued premium increases. “The marketplace, generally speaking, understands that it needs rate and continues to push for rate,” a source told Carrier Management.
More traffic, more claims
Wiltgen said total claims are increasing due to road density — more vehicles traveling more miles; driver shortages pushing less-experienced drivers onto the road and keeping some older drivers on the road too long; lack of driver training programs; and distracted driving.
“These factors will continue to mean increases in pricing and/or lack of availability of coverage as insurance companies exit the market,” she said. “Our auto liability line is profitable as we continue to focus on ways to combat the contributing factors.”
Operators must focus on robust risk management programs and consistently follow realistic policies and procedures, Wiltgen said.
“RLI Transportation has addressed these conditions the past several years through several initiatives: exiting riskier classes of business, limiting writings in regions with problematic litigation climates and maintaining adequate auto liability rates,” Hathy said. “We have also invested heavily in our claims and loss control departments, whose efforts have helped our customers develop an improved safety culture and reduce frequency and severity of claims.”
Carrier relationships with insurers are critical, Wiltgen agreed.
“In addition to the obvious benefits stemming from working together with our customers on strong risk management, loss prevention and claims management, we maintain close relationships that allow for transparent interactions and discussions about the value the operator derives from their insurance program,” she said.
The “2019 A.M. Best Auto Liability Market” report predicts still higher medical expenses and more expensive repairs of increasingly sophisticated vehicles. “Commercial auto losses (will) continue to drag on the industry’s profitability, even after years of significant rate increases.”