Commercial Auto Losses Are Climbing: 4 Ways to Keep Them Under Control

Frequency and severity of crashes continue to rise, but these steps can help companies protect drivers from liability.
By: | December 6, 2018 • 5 min read

Commercial auto losses continue to trend upward, and profitability in this line remains elusive for carriers despite regular rate increases. A CIAB survey revealed that in Q2 2018, commercial auto premiums saw the highest increases across all lines of business, rising 8.2 percent.

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However, there are things that both insurers and insureds can do to minimize the damage. Angela Guitar, Head of Excess Casualty Claims at AXA XL, describes four key trends driving losses in the commercial auto sector, and four ways to mitigate them.

4 Trends Driving Commercial Auto Losses

Big losses are being driven by both increasing frequency and severity.

1. More autos mean more accidents.

For one thing, more accidents are happening simply because there are more cars on the road. According to research analyst IHS Market, the number of cars registered to American drivers in 2016 exceeded 264 million, a 2.4 percent increase from 2015. This is one reason why more costly crashes involve light passenger vehicles — insured entities which historically have not been sources of big losses.

“We started to see a steady uptick over the past five years of severe accidents which involved private passenger vehicles owned by insureds — for example, an employer with a sales force that uses their own cars, but is covered by a commercial auto policy,” Guitar said.

“In the past, the focus on pricing was concentrated on heavy commercial vehicles. Based recent trends, we began to switch gears and make sure we were properly accounting for the risks presented by private passenger fleets.”

2. Distracted driving makes crashes more common.

Increased frequency of light vehicle crashes is not just the result of more cars on the road; distracted driving is a major contributing factor. Attachment to our mobile devices and sophisticated on-board infotainment systems don’t exactly help drivers keep their eyes on the road.

Approximately 80 percent of our cases involve some type of distracted driving, whether it’s texting or talking on the phone, playing with the dashboard screen, eating or just reaching for something on the floor of the car.” –  Angela Guitar, Head of Excess Casualty Claims, AXA XL

“Approximately 80 percent of our cases involve some type of distracted driving, whether it’s texting or talking on the phone, playing with the dashboard screen, eating or just reaching for something on the floor of the car,” Guitar said.

3. Traumatic injuries raise claim costs.

Claim severity is also rising thanks in part to rising medical costs and increased frequency of significant injuries like spinal and traumatic brain injuries.

“A high percentage of our claims allege a traumatic brain injury, even in low-speed accidents. Five or six years ago that was not the case,” Guitar said. “Treatment options are also getting more aggressive, including surgery. Any kind of surgery can drive up the value of a claim.”

4. Juries are awarding higher verdicts.

When claims go to court, increasingly sympathetic juries combined with the erosion of damage caps in many states have produced ever-climbing verdict amounts.

…there’s increasingly a fear that defendants will not get a fair shake if they go to trial, which can also drive up the value of settlements, further straining our ability to resolve claims fairly.

“Significant verdict awards are popping up all over the country. Even in cases where it seems clear that the insured had no liability for an accident, or the injuries aren’t catastrophic, defendants are experiencing an increase in multi-million-dollar verdicts,” Guitar said.

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“Because of this, there’s increasingly a fear that defendants will not get a fair shake if they go to trial, which can also drive up the value of settlements, further straining our ability to resolve claims fairly.”

4 Ways to Minimize Losses

While factors like medical costs and generous juries are outside the control of insurers and their clients, there are still steps companies can take to reduce frequency of crashes and minimize their exposure to legal liability.

1. Implement a cell phone policy.

Guitar’s top recommendation for owners of auto fleets is creating and enforcing a strong cell phone usage policy. That could mean requiring drivers to close any open apps, turn on a “driving mode” feature that disables certain functions while on the road, or turn the phone off completely.

“It’s not enough to say ‘I wasn’t on my phone’ if you’ve been in an accident,” Guitar said. In one Texas case, plaintiff’s counsel tried to argue that the defendant must have been on his phone because he had several apps open at the time of the accident, even though there was no further proof that the driver was actively using them.

An employer cannot call or text an employee they know to be behind the wheel.

“That argument didn’t stand up in court, but it does demonstrate how creative plaintiffs are getting,” Guitar said.

A policy should also dictate that the employer cannot call or text an employee they know to be behind the wheel.

“One example involved a claim where the insured ran through a stop sign and T-boned another car.  He had been answering a text at the time that came from the Call Center of his employer,” Guitar said. “The liability may be viewed as pretty clear-cut in that situation. Employers should not be distracting their own employees while they’re driving.”

2. Invest in a telematics system.

That scenario also demonstrates the importance of fleet telematics that capture exactly what was going on at the time of an accident.

“In an auto accident there’s a lot of ‘he said, she said’ type of allegations.. There’s a black box in most cars where you can access data like speed, hard turns and braking, etc. That may reveal whether there was unsafe driving behavior going on. They are definitely worth the investment,” Guitar said.

“But that’s not always enough to prove things like the force of impact and it’s not always enough to prove fault.”

3. Install cameras facing in and out.

Outward-facing dashboard cameras paint a more detailed picture of exactly how an accident happened. Inward-facing cameras definitively show whether a driver was distracted.

“More often than not, these cameras have been helpful for insureds. It takes a bit of  time to get drivers comfortable with being filmed, but once they understand that the cameras are their best defense in a claim, they come around,” Guitar said.

It takes a bit of  time to get drivers comfortable with being filmed, but once they understand that the cameras are their best defense in a claim, they come around.

Even when the footage shows that an insured driver is clearly at fault, that immediate information allows insurers to determine whether it makes sense to go forward with the claim or not.

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“Accidents happen. That’s why we’re here. But if we know our insured is at fault, we can resolve the matter more quickly, before we incur litigation costs, and produce a good result for everybody,” Guitar said.

4. Raise awareness about the risk.

Guitar pointed to a long-haul trucking company as an example of what to do right when it comes to protecting drivers on the road.

“Vigilant managers would check on their drivers as they came in to assess whether they seemed tired, angry, or distracted in any way. They recognized that a driver’s mental state matters,” she said.

Of course, not every company has the ability to monitor drivers’ frame of mind before every trip. Nonetheless, “a little education can go a long way,” Guitar said. “More awareness needs to be raised about the problem of distracted driving overall; it’s a danger that affects everyone. Simple reminders to be safe and focused on the road can help.”

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]