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Survey Report

Construction Marketplace Realities 2019 – Auto Liability

Insurance Consulting and Technology

March 29, 2019

Auto Liability is the most challenging casualty line. Underwriting results have been worsening. Increased loss activity is from the frequency and severity of claims.

Rate predictions

  Trend Range
Auto Liability Rate Forecast: Increase +5% to +20%

Key takeaway

Currently, Auto Liability is the most challenging casualty line. Underwriting results have been worsening. Increased loss activity is from the frequency and severity of claims.

Auto Liability remains the most challenging line in primary casualty for insureds. Underwriting results have been sharply deteriorating since 2015, without a plateau in sight. While there is indication that repeated auto rate increases year after year are having an impact on carrier profitability and rate strategy, we don’t expect underwriters to “take their foot off the gas” just yet. Combined ratios for auto are well in excess of 100 for most carriers. Increased loss activity is not just in the frequency but also severity of claims.

  • The robust economy is putting more vehicles on the road than ever before and, as we would expect, increasing the frequency of accidents. With unemployment rates categorically low, this translates into driver shortages for many firms, most notably transportation and construction firms, especially since these often require CDL certifications. As a result companies are hiring less experienced drivers, and insurers are seeing a rise in accidents.
  • More claims are being litigated, with verdict outcomes consistently in the seven- or eight-figure range. Common high value verdicts are stemming from traumatic brain injury claims (TBI), negligent entrustment/driver selection, and distracted driving. Furthermore, a rise in third-party litigation finance is encouraging the jump to file suit.
  • Insureds with historically adverse auto loss experience and a heavier fleet exposure are likely to receive even more significant rate increases than average:
    • Little to no loss activity and low fleet hazard — up to 5% or more
    • Moderate loss activity and moderate fleet hazard — up to 10% or more
    • Significant loss activity and high fleet hazard — up to 20% or more
  • Auto physical damage pricing is also encountering challenges. Comp/collision claims can escalate quickly due to the increased technology in vehicles — a bumper is no longer just a bumper, it’s also a sensor and camera. In addition to auto physical damage rate increases, auto physical damage deductibles for comprehensive and collision are also on the rise. For private passenger and light trucks, a $1,000 deductible may be the norm, but deductibles escalate much higher for large vehicles, $2,000 or more for heavy to $5,000 or more for extra heavy vehicles.

If performing well, carriers have been willing to reduce WC rates modestly to help offset auto rate increases. Due to the growing concern on GL, carriers are less likely to reduce GL rates to offset the auto rate increase, as done in recent years. Poor experience in other casualty lines (GL and/or WC) may exacerbate overall program pricing increases as carriers are unable to offset auto pricing increases in the other lines of business.

Disruptors on the horizon:

  • Expectations in fleet safety programs: Telematics, driver selection/training and formalized fleet safety programs are becoming a more standard expectation in the marketplace. Buyers are challenged to be more engaged and proactive than ever in managing their fleet exposures. However, a plan in writing but not in practice can be just as detrimental in a claim as no plan at all. The same can be said of telematics. If the data is being tracked but not reviewed or acted upon this could pose legal implications for a defendant. It’s critical that fleet safety initiatives are deployed thoughtfully and thoroughly.
  • Defining vehicle use: Vehicle usage data (miles driven, location, etc.) is now often required submission information. Data on vehicles “laid up” (not used for significant periods of time) or used only within the boundaries of a large construction project (limited public road use) can help mitigate concerns and costs.
  • Primary, buffer or umbrella: There has been disruption to the traditional program structure on primary auto and its attachment to the lead umbrella. Fleet size, irrespective of loss experience, has become a significant component of umbrella underwriting. Insureds with large fleet schedules may be forced to increase primary auto limits or obtain an auto buffer layer to satisfy new umbrella/excess requirements. $2M primary limits are becoming the minimum primary combined single limit (CSL) standard. Buyers who currently purchase a $1M primary CSL limit should seek a $2M primary CSL option. Large fleets (> 500 power units) may see $5M underlying limit requirements from some carriers.
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