Sponsored: Liberty Mutual Insurance

Commercial Auto Warning: Emerging Frequency and Severity Trends Threaten Policyholders

Commercial auto policyholders should consider utilizing a consultative approach and tools to better manage their transportation exposures.
By: | June 1, 2016 • 6 min read

The slow but steady climb out of the Great Recession means businesses can finally transition out of survival mode and set their sights on growth and expansion.

The construction, retail and energy sectors in particular are enjoying an influx of business — but getting back on their feet doesn’t come free of challenges.

Increasingly, expensive commercial auto losses hamper the upward trend. From 2012 to 2015, auto loss costs increased a cumulative 20 percent, according to the Insurance Services Office.

“Since the recession ended, commercial auto losses have challenged businesses trying to grow,” said David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty at Liberty Mutual Insurance. “As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”

For companies with transportation exposure, costly auto losses can hinder continued growth. Buyers who partner closely with their insurance brokers and carriers to understand these risks – and the consultative support and tools available to manage them – are better positioned to protect their employees, fleets, and businesses.

Liberty Mutual’s David Blessing discusses key challenges in the commercial auto market.

LM_SponsoredContent“Since the recession ended, commercial auto losses have challenged businesses trying to grow. As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
–David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty, Liberty Mutual Insurance

More Accidents, More Dollars

Rising claims costs typically stem from either increased frequency or severity — but in the case of commercial auto, it’s both. This presents risk managers with the unique challenge of blunting a double-edged sword.

Cumulative miles driven in February, 2016, were up 5.6 percent compared to February, 2015, Blessing said. Unfortunately, inexperienced drivers are at the helm for a good portion of those miles.

A severe shortage of experienced commercial drivers — nearing 50,000 by the end of 2015, according to the American Trucking Association — means a limited pool to choose from. Drivers completing unfamiliar routes or lacking practice behind the wheel translate into more accidents, but companies facing intense competition for experienced drivers with good driving records may be tempted to let risk management best practices slip, like proper driver screening and training.

Distracted driving, whether it’s as a result of using a phone, eating, or reading directions, is another factor contributing to the number of accidents on the road. Recent findings from the National Safety Council indicate that as much as 27% of crashes involved drivers talking or texting on cell phones.

The factors driving increased frequency in the commercial auto market.

In addition to increased frequency, a variety of other factors are driving up claim severity, resulting in higher payments for both bodily injury and property damage.

Treating those injured in a commercial auto accident is more expensive than ever as medical costs rise at a faster rate than the overall Consumer Price Index.

“Medical inflation continues to go up by about three percent, whereas the core CPI is closer to two percent,” Blessing said.

Changing physical medicine fee schedules in some states also drive up commercial auto claim costs. California, for example, increased the cost of physical medicine by 38 percent over the past two years and will increase it by a total of 64 percent by the end of 2017.

And then there is the cost of repairing and replacing damaged vehicles.

“There are a lot of new vehicles on the road, and those cost more to repair and replace,” Blessing said. “In the last few years, heavy truck sales have increased at double digit rates — 15 percent in 2014, followed by an additional 11 percent in 2015.”

The impact is seen in the industry-wide combined ratio for commercial auto coverage, which per Conning, increased from 103 in 2014 to 105 for 2015, and is forecast to grow to nearly 110 by 2018.

None of these trends show signs of slowing or reversing, especially as the advent of driverless technology introduces its own risks and makes new vehicles all the more valuable. Now is the time to reign in auto exposure, before the cost of claims balloons even further.

The factors driving up commercial auto claims severity.

Data Opens Window to Driver Behavior

To better manage the total cost of commercial auto insurance, Blessing believes risk management should focus on the driver, not just the vehicle. In this journey, fleet telematics data plays a key role, unlocking insight on the driver behavior that contributes to accidents.

“Roughly half of large fleets have telematics built into their trucks,” Blessing said. “Traditionally, they are used to improve business performance by managing maintenance and routing to better control fuel costs. But we see opportunity there to improve driver performance, and so do risk managers.”

Liberty Mutual’s Managing Vital Driver Performance tool helps clients parse through data provided by telematics vendors and apply it toward cultivating safer driving habits.

“Risk managers can get overwhelmed with all of the data coming out of telematics. They may not know how to set the right parameters, or they get too many alerts from the provider,” Blessing said.

“We can help take that data and turn it into a concrete plan of action the customer can use to build a better risk management program by monitoring driver behavior, identifying the root causes of poor driving performance and developing training and other approaches to improve performance.”

Actions risk managers can take to better manage commercial auto frequency and severity trends.

Rather than focusing on the vehicle, the Managing Vital Driver Performance tool focuses on the driver, looking for indicators of aggressive driving that may lead to accidents, such as speeding, sharp turns and hard or sudden braking.

The tool helps a risk manager see if drivers consistently exhibit any of these behaviors, and take actions to improve driving performance before an accident happens. Liberty’s risk control consultants can also interview drivers to drill deeper into the data and find out what causes those behaviors in the first place.

Sometimes patterns of unsafe driving reveal issues at the management level.

“Our behavior-based program is also for supervisors and managers, not just drivers,” Blessing said. “This is where we help them set the tone and expectations with their drivers.”

For example, if data analysis and interviews reveal that fatigue factors into poor driving performance, management can identify ways to address that fatigue, including changing assigned work levels and requirements.  Are drivers expected to make too many deliveries in a single shift, or are they required to interact with dispatch while driving?

“Management support of safety is so important, and work levels and expectations should be realistic,” Blessing said.

A Consultative Approach

In addition to its Managing Vital Driver Performance tool, Liberty’s team of risk control consultants helps commercial auto policyholders establish screening criteria for new drivers, creating a “driver scorecard” to reflect a potential new hire’s driving record, any Motor Vehicle Reports, years of experience, and familiarity with the type of vehicle that a company uses.

“Our whole approach is consultative,” Blessing said. “We probe and listen and try to understand a client’s strengths and challenges, and then make recommendations to help them establish the best practices they need.”

“With our approach and tools, we do something no one else in the industry does, which is perform the root cause analysis to help prevent accidents, better protecting a commercial auto policyholder’s employees and bottom line.”

To learn more, visit https://business.libertymutualgroup.com/business-insurance/coverages/commercial-auto-insurance-policy.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.


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Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty and workers compensation.

More from Risk & Insurance

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2018 Power Broker

To the Ends of the Earth

From the frozen Arctic to the inferno of a high net worth divorce, Power Brokers go to extremes to find solutions for their clients.
By: | February 20, 2018 • 2 min read

Looking for the Power Broker Winners? Click Here.

Picture this: A bitter divorce so heated that the principals are only communicating through their attorneys. Then their house burns down. Imagine walking into that situation and trying to find solutions that will please both parties.

But that’s exactly what 2018 Power Broker® Jeff Kaplan, family office practice leader, Risk Management Strategies, did.

Kaplan, who won in the Private Client category, negotiated the sale of the property — forget the rebuild, let the new owner take that on, he counseled his clients — orchestrated a 30-day auction for its sale, and achieved a profitable result for every party in the transaction, each half of the feuding couple and the developer of the sold property.

To the client, Kaplan’s work, including his high degree of emotional intelligence, released him from the “seventh circle of hell.”

From that doused inferno, let us now cast our eyes to the frozen north.

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The owner of a barge learned their property sank off of Nome, Alaska, (average temperature 27 degrees Fahrenheit). With an approaching freeze threatening to seal off the harbor, the owners, Phoenix Marine, risked losing valuable equipment.

Into action sprang George Andersen, a 2018 Power Broker® in the Marine category. With precious little time to lose, Andersen negotiated the claim and communicated proactively with the U.S. Coast Guard and other officials. Then he commissioned salvage divers from New York to travel to Alaska and retrieve the valuable equipment from the sunken barge.

Before we depart the Arctic, let us consider another 2018 Power Broker® from Aon, Christian Wise. To arrange cover for a defense contractor’s radio installations in a remote Arctic location, Wise dispatched a loss control engineer, complete with instructions on the use of a shotgun should polar bears interlope in temperatures that registered negative 29 degrees Fahrenheit.

One of the radio installations had already burned to the ground due to scant local fire protection, culminating in a $20 million loss. Despite that, working with London underwriters, Wise and his team were able to shave $1.3 million off an initial property premium cost of $1.8 million.

Power Brokers are judged by a team of Risk & Insurance® editors and writers over a three-month period each year. After interviews with hundreds of sources, winners are picked for their creativity and resourcefulness, their excellent customer service and their industry knowledge.

Not every Power Broker® required one of their associates to tote a shotgun. But many of them went to extremes for their clients; some of them waded into hurricane ravaged neighborhoods to document damage; others put their personal lives on hold, including one Power Broker® who delayed his honeymoon to attend a meeting on behalf of his client.

This year, 158 Power Broker® winners were chosen, as well as 55 finalists, spanning 25 industry categories. Congratulations to every one of these exceptional individuals. Click here to begin reading the profiles of this year’s winners. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]