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The Current State of Auto Coverage What you should know

Auto Coverage

Most businesses and individuals in the U.S. are experiencing considerable rate increases on auto coverage due to significant losses in the market. In 2016, carriers experienced a 13% spike in auto losses – their worst underwriting performance for the line since 2001 – and S&P projects that auto losses will increase by another nearly 7% this year, hitting a record high of approximately $154 billion. With the combined ratio at a 15-year high of 110%, it’s no surprise that carriers have been seeking rate increases into the double digits across their entire auto book.

Factors Driving Auto Coverage Increases

Accidents are easily correlated to increases; however, even businesses with an accident-free history are being hit with increases on their auto premiums. Why? Market analysts attribute these across-the-board increases to several factors:

Distracted driving – Activities including talking on the phone, viewing/responding to emails, social media updates and texting while driving are escalating at an alarming rate. This factor alone now contributes to over 30% of all reported accidents.

Amount of time on the road – With the health of the economy improving, businesses are hitting the road. Some companies are increasing utilization of their existing vehicles and workforce and others are expanding, hiring more employees and increasing the size of their fleets. In either case, more mileage driven for work-related purposes directly correlates to more accidents.

Inexperienced drivers – The aging workforce creates a shortage of skilled commercial drivers. The lack of availability often outweighs the demand, forcing companies to hire younger, less experienced drivers in an effort to fill the gap; which in turn increases the likelihood of an accident.

Rise in fatalities – According to the National Highway Traffic Safety Administration, 2016 saw the largest rise in traffic fatalities since 1996. Even more alarming, the National Safety Council stated that 2015 and 2016 showed the greatest 2-year increase in motor vehicle fatalities in over 50 years. According to data, there were approximately 40,000 motor vehicle accident fatalities in 2016; a 6% increase from 2015 and a 14% increase from 2014. Research and investigators attribute the rise to the risk factors mentioned above.

Increased costs – Costs associated with auto accidents are increasing across the board, including medical payments, auto repair costs and/or attorney fees. Attorneys have become more aggressive in seeking to prove negligence on behalf of corporations, which has driven up litigation costs. Newer vehicles include sensors, cameras and other new electronics that are more costly to repair, and medical costs are at an all-time high, rising 1.5x faster than any other cost associated with auto incidents. All of these factors play a major role in driving up commercial auto losses and, in turn, premiums.

How Should Businesses Respond To Rising Auto Coverage Costs?

While you may not have direct control over the auto market, there are things you can do internally to minimize your exposures that may help to control your future auto premiums and, more importantly, protect your employees.

Management commitment – Strong management involvement is essential to the culture of a company. Concern for employees must be evident.

Fleet safety – Implement a fleet safety program and follow proper fleet maintenance procedures. Enforce your policy for use of company vehicles (e.g., limitation on personal use, who can use company vehicles, hours of operation, distracted driving etc.)

Personal vehicle use – Be aware of the risks involved with employees using their personal vehicles on the job and limit this practice where possible.

Check driving records – Employers should regularly check employees’ driving records and take appropriate action if driving records are not acceptable.

Accident investigation – Implement formal, written processes for documenting and reporting accidents including details on results of the investigation and strategies to prevent similar accidents.

Telematic devices – Companies with large fleets may want to consider the use of these devices to monitor employee driving habits and usage of company vehicles.

Driver safety training – Important topics include, but are not limited to: distracted driving, speeding, DUI, need for rest, what to do if your vehicle breaks down, etc.

Your business’ efforts in the area of auto safety are only part of building a comprehensive safety culture specific to your needs. At Scott, we are committed to helping our clients understand and address the complex risks of operating a business in today’s ever-changing environment, including navigating this new era of auto coverage. To learn more about how we can help your business, contact a Scott Risk Advisor.