What’s Driving the Rate Increases?
It’s no secret to anyone in the insurance industry that price increases in today’s commercial auto sector have become the norm. For the past several years, the loss and combined ratios on a net basis have trended unfavorably for commercial auto, compelling some major insurance companies to exit the marketplace. While the exodus of insurers appears to have tapered off for the time being, those companies that remain are forced to implement additional rate increases in order to return to underwriting profitability.
Much of the blame behind the troubling performance trends in the commercial auto segment can be attributed to claims severity and a steady increase in claims costs over the past five years. Modern, technologically-sophisticated vehicles are far more expensive to repair or replace. At the same time, medical costs have skyrocketed and “nuclear” jury verdicts, in which crash victims are awarded blockbuster payouts over accidents, have become commonplace. And, while Compliance, Safety, Accountability (CSA) scoring and technological advances such as electronic logging devices (ELDs) have helped to improve safety, the data trail that they create can be used by plaintiff attorneys against motor carriers after an accident.
To make matter worse, third party funding has grown in recent years, meaning claims are open longer, driving up legal expenses. Based on the latest data available from the Federal Motor Carrier Safety Administration (values adjusted to reflect 2019 U.S. dollars):
The average cost of a “large truck” fatality crash is nearly $4.5 million
An accident with injuries runs approximately $244,000 per crash
The average cost of all large truck crashes is roughly $114,000 per crash
Yet, severity is not the only factor contributing to the sustained losses in the commercial auto sector.
The nation’s rebounding economy has caused a boost in the number of vehicles on the road and a record growth in miles driven. More vehicles and more miles have contributed to an upward trend in accident frequency.
Distracted driving resulting from smartphone use while behind the wheel has played a key role in the jump in commercial auto loss frequency.
Increasing frequency and severity of weather events such as hurricanes, floods and hail storms, has led to higher auto physical damage loss ratios.
Commercial auto is not out of the woods just yet, however, we feel that we are well positioned to weather the storm. We will continue to seek rate increases that are more commensurate with prevailing exposures, and make the underwriting changes necessary to keep up with the loss trends. We feel that doing so is better not only for our company, but for our producers, in the long term.
Jury Sends Strong Message to Motor Carriers, Drivers
A semi-truck driver was recently awarded $80 million by a Texas jury after his employer instructed him to falsify his log book and drive when he should have taken his 34-hours of rest pursuant to federal regulations. During the May 2015 trip, the driver fell asleep at the wheel and rear-ended another tractor-trailer on Interstate 59 in Alabama, causing him severe debilitating injuries.
The jury voted to award the driver $5 million in compensatory damages. Additionally, the three companies owned by his employer were ordered to each pay $25 million in punitive damages, which serve to punish defendants and prevent them and others from committing similar acts of wrongdoing in the future. During the trial, multiple company drivers had testified that the employer required them to drive in excess of hours of service (HOS) regulations and instructed them to falsify log books to cover up those violations.
Following the trial, the driver’s attorney said that the jury approved the monumental award because it “specifically wanted to get the attention of all commercial motor carriers and remind them of the importance of the safety rules.”
Falsification of driver log books is one of the reasons why the use of electronic logging devices (ELDs) is now mandated by federal regulations. It should be noted, however, that while ELDs help eliminate human error in log entries and make falsification of log books more difficult, they create a data trail that can become the focus of plaintiff attorneys after an accident. If the data shows that a carrier and/or a driver are not operating safely and compliantly, they will likely face an uphill battle in the courtroom.
Even if violating federal regulations, such as HOS as in this case, does not result in an accident and a lawsuit, any serious violation can wreak havoc on a motor carrier’s operation including:
Drivers and vehicles may be placed out of service.
State and local enforcement officials may assess fines.
The Federal Motor Carrier Safety Administration may levy civil penalties on the driver or carrier.
Federal criminal penalties can be brought against the driver and carrier.
Driver and carrier scores under the Compliance, Safety, Accountability (CSA) enforcement program may be severely impacted and result in a variety of enforcement actions. Poor CSA scores may also have a negative impact on a motor carrier’s reputation, and on its ability to attract new drivers and obtain insurance.
Of course, the best way to avoid such serious consequences lies in actively and aggressively pursuing safety, and by making regulations and compliance an integral part of daily company operations. The cost for not doing so is something motor carriers and drivers simply can’t afford.