Your Guide to Navigating the Hardening Auto Liability Market

A number of factors have contributed to a hardening auto liability market — rising claims severity and settlement costs, more vehicles on the road, much higher medical costs and fraud. Auto liability has been challenging and unprofitable for insurers, leading to increased rates and shifting more of the risk and loss to insured companies. While there are fewer vehicles on the road and accidents in 2020 due to COVID-19 and the corresponding recession, claims severity from prior years continues to escalate. With more organizations reducing payroll, vehicles or revenues due to the current environment, the rate pressure from insurers continues to grow.

Altogether, this is creating a significant financial problem for companies, especially those with large vehicle fleets. Organizations today are taking a much larger portion of the loss as a deductible, in addition to taking a larger portion of the volatility and dealing with significantly higher premiums. Aon analysis in Q1 2020 found that auto rates in North America, especially for large fleets, were increasing significantly due to costly verdicts and rising claims. And costs are increasing across the board, making it difficult for companies to fully assess the long-term financial impact. For example, companies that must pay medical costs due to auto incidents over a number of years face substantial, unpredictable expenses as medical costs significantly outpace the rate of inflation and more expensive medical technology comes into play. Other trends are shaping the litigation landscape too — the economic distress in the United States could potentially lead to a rise in fraudulent claims, and third-party litigation is growing.

Companies must be aware of these trends to effectively navigate the market and manage their total cost of risk. In auto liability, there are several strategic moves organizations can make now.

Making the right vehicle technology investments

Cameras and video event recording technology can play a role in settling claims quickly by answering questions of who’s at fault or what went wrong. These cameras document the actions of the insured driver and other vehicle actions, providing critical data. In addition, crash avoidance vehicle technology such as auto brake, forward and side collision warning, blind spot detection, and rear cross traffic alert can help reduce incidents in the first place. A 2019 study by the Insurance Institute for Highway Safety (IIHS) and the Highway Loss Data Institute (HLDS) found that crash avoidance features did result in a decrease in police-reported crashes and insurance claims. Ultimately, companies are still proving the value of these technologies, but camera- and sensor-based technology can be an effective way for companies to answer questions of fault, gather data on driver patterns and manage their claims response where necessary.

Prioritizing driver safety and prevention strategies

Motor carriers that commit to prevention through safety are better positioned to manage risk and overall costs. Companies should have a well-documented safety and training process, clear and well-maintained training records, and ongoing coaching that includes new technology in vehicles. Safety should be a top management concern and drivers should be fully supported.

Reducing distraction is also a critical prevention measure. Distraction can come from a number of sources, but distraction due to cell phone use is prevalent. A survey from UFG Insurance found that 72% of commercial drivers admit to distracted driving and 47% say they have read a text while behind-the-wheel. And the Federal Motor Carrier Safety Administration reported that research showed the likelihood of a “safety-critical” event such as a crash, near crash or unintentional lane shift is 23.2 times greater for commercial motor vehicle drivers who text while driving. Other safety issues such as falling asleep at the wheel or exhaustion are also contributors that companies need to watch for. To reduce distractions, non-regulated companies with non-regulated fleets should have strict rules regarding the use of cell phones on the road and put route management controls in place to help drivers avoid long hours of driving, enforce rest breaks and limit night driving. Commercial fleets do have regulations that must be followed – hours of service, driver qualifications and hands-free cell phone activity with no texting. To achieve better driver safety and health and wellbeing outcomes, companies should invest in good communication from leadership to demonstrate and solidify their commitment to drivers on the road.

Being thoughtful about geographic operations

Companies should be thoughtful about where they operate to help manage costs. For instance, certain states in the U.S. are more litigious. Aon research showed that the legal climate in California, Louisiana and New York among other states, was increasingly challenging — causing some insurers to withdraw from the market or restrict capacity. Underwriters are taking a closer look at where an organization operates, so companies should be aware of the implications of their geographic operations. Multinationals should track the changing legal environment wherever they are; the same Aon research found that in the UK, losses were growing in both frequency and severity as the region becomes more litigious.

Premiums can vary, and be more expensive, based on geography. While it may be difficult for a company to make larger shifts in where they operate, they should be ready to provide information on the areas in which they operate and communicate to management the impact of their operational footprint on the insurance premium.

Understanding the role of brand reputation

A good corporate reputation adds value in a number of areas, but it can also be a benefit in managing certain areas of risks and associated costs. A good reputation can create a competitive advantage for hiring, which can help a company bring on more experienced drivers with better records; and if a claim or issue does occur, positive branding and goodwill can help throughout the entire process. The same elements that help organizations build positive reputations and combat reputation risks —transparency, good communication and proactivity — should be applied in the claims and insurance process. For overall reputation management, companies should continually assess their positioning in the market, media landscape and stakeholder perception and stay abreast of trends and consumer shifts — for example, a greater emphasis played on environmental or social initiatives. Companies should approach reputation risk the same way they look at all other risks — and have mitigation and management strategies in place.

While a hardening market does present challenges, companies that focus on proactive, preventive strategies can better manage rising costs and risks. Preparation and thoughtful approaches will form a solid foundation for real-time responses and the inevitable market shifts in the future.