Auto Insurers Have a New Risk to Worry About: Luxury ‘Green’ SUVs

An analysis of claims data by AXA XL doesn’t bode well for electric vehicle safety, but it’s too soon to tell what reaction that warrants.

By: Katie Dwyer | September 22, 2019

AXA XL recently reported that, according to its liability insurance claims data, electric luxury cars and SUVs are 40% more likely to cause accidents compared to their combustion-engine counterparts.

The findings were based on 1,000 vehicles that had been on the road for seven years — referred to as 7,000-year risks.

Electric vehicles accelerate much more quickly. They can reach top speed almost instantaneously, whereas regular cars take a few seconds to rev up.

In a survey conducted by the insurer earlier this year, half of electric car drivers attested to the learning curve associated with “green” cars’ more sensitive acceleration and braking.

Faster speed and reduced reaction time are a recipe for crashes. National data shows that even a 10-mph speed increase ups the risk of a crash by 9.1%.

Risks of Driving Electric

Without the signature hum of a motor, electric cars may also pose increased risk to pedestrians and cyclists who can’t hear them coming.

The problem is so pertinent that The National Highway Traffic Safety Administration is requiring U.S. manufacturers of all new electric and hybrid vehicles to install software that will emit sound when travelling at or below 19 mph.

With a compliance deadline of Sept. 1, 2019, those vehicles will just be hitting the streets en masse.

Sales of both private passenger and commercial electric vehicles have been on the rise and are only projected to grow.

This is thanks to more affordable cars, greater availability of charging stations and, of course, a societal desire to reduce CO2 emissions.

A market analysis by BloombergNEF concluded that it expects 56% of light commercial vehicle and 31% of medium commercial vehicle sales in U.S., China and Europe to be electric by 2040.

More electric cars on the road could translate to higher crash frequency.

Crash severity may also worsen as drivers and first responders learn the nuances of managing a scene involving electric cars. Because they can’t hear the engine, those on site may forget to ensure it’s turned off.

The batteries of electric cars are also likely to overheat and can catch fire up to 48-hours after a crash, which could impair the accident investigation and endanger the environment through the emission of toxic fumes.

What the Data Didn’t Address

Interestingly, AXA’s claims data study found the opposite to be true for compact and micro electric vehicles, which are slightly less likely to be involved in accidents compared to standard versions. The reasons for that difference are not entirely clear.

One factor not accounted for in AXA’s study was the effect of new and increasingly common safety features like seat belt alarms, lane departure and front- and rear-end collision warnings.

According to 2016 data from the Insurance Institute for Highway Safety, automatic braking reduces rear-end crashes by about 40%, while forward collision warning alone reduces crashes by 23%.

These features are becoming standard in newer combustion and electric vehicles alike and could potentially offset some of the risk posed by quick acceleration.

As drivers gain more experience behind the wheel of nimble electric cars, it’s also likely they’ll adopt the lighter foot needed to drive electric cars safely.

What It Means for Auto Insurers

According to A.M. Best, combined ratio for the U.S. commercial auto market was 112.9 through Q3 2018, up from 111 in 2017 and 110.4 in 2015. The taking agency said this sector hasn’t had a combined ratio under 100 since it hit 97.9 in 2010.

More cars on the road, rising medical costs, increasingly tangled questions of liability and skyrocketing verdicts are all contributing to the eroding ratio, as well as years of less disciplined underwriting common in a soft market.

Amid these factors, the relevance of AXA’s findings for auto insurers’ underwriting and reserving strategies remains unclear at this point.

In comments on the study, AXA’s head of accident research and prevention Bettina Zahnd noted that its findings were not statistically significant, and that overall, the accident rates between electric and standard vehicles are roughly the same.

She acknowledged that the connection between electric SUVs and accident frequency was a trend to watch but does not yet elicit a specific call to action.

Currently, many auto insurers offer discounts to drivers of environmentally friendly vehicles. While there’s no sign of that benefit disappearing, it will certainly be worthwhile to keep an eye on emerging claims data to get ahead of any worsening exposures. &

Katie Dwyer is a freelance editor and writer based out of Philadelphia. She can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

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