A legal requirement for thousands of domestic companies, commercial auto insurance is a vast, rapidly evolving market segment. It’s a space that encompasses organizations in various parts of the economy and is a top priority for any regulated transportation firm that requires a financial responsibility filing, whether that’s state, federal or PUC. Truckers, charter buses and moving companies all fall under that umbrella, but commercial auto coverage is also required for any organization that owns, leases or rents cars, trucks and other vehicles.
“Any businesses that own or operate a vehicle for business use – whether it shuttles customers, transports its own goods or just simply runs errands and picks up supplies – would need a commercial auto policy,” says Megan Wicks, senior underwriter of transportation and garage at Gorst & Compass Insurance.
The reputational and financial costs associated with an auto incident can have a devastating impact on an organization of any size, and as a result, most US-based companies are prepared to pay for adequate coverage. Most commercial auto policies cover damage to all areas of the vehicle, medical expenses and other associated property damage. Policies are designed to minimize business interruption and enable clients to get back on the road as soon as possible with a minimum of fuss.
The burgeoning space represents a good opportunity for ambitious brokers to grow their books of business, but there are many types of coverage and potential risks that brokers need to be familiar with. In addition to standard commercial auto and non-owned/hired policies, inland marine policies are an important option for any contractor who regularly moves expensive materials, equipment or supplies from job site to job site.
“This way, in the event of an accident, the goods or materials being shipped are protected separately, and fixed auto insurance coverage limits for property damage are not applicable,” says Jack Coleman, vice president at Midlands Management Corporation.
“There may also be the need for an additional insured to be added to the policy when there are co-titled or leased vehicles, or the vehicle owner is not the named insured. Trailer liability may be needed, or even a garage policy if you are an auto dealer, auto repair shop or car rental agency.”
Technology’s role
Emerging technology is revolutionizing many industries, and the commercial auto space is no different. The increasing popularity of ridesharing companies like Uber and Lyft has forced the insurance industry to adapt and find ways to provide coverage for individuals who use their personal car to make money on a part-time basis.
“The ridesharing idea has moved to delivery services such as On-Trac and DHL,” Wicks says. “They now have UBEROnTime, and others are trying to start up similar operations in nearly every segment of transportation.”
With competitive pressures driving insurers to find ways to cut business costs and improve both productivity and efficiency, telematics technology is also beginning to make its mark in North America. Whether in a cell phone, dongle, black box or smart tag, telematics sensors collect data on driver and vehicle behaviour such as acceleration, braking, cornering, driving time and distance. The collected data is then supplemented with contextual data such as weather and road type, and analysed to provide insights to the insurer.
Telematics is the technology underlying usage-based insurance, automated first notice of loss, crash reconstruction and touchless claims management. It’s being used by insurers to improve policyholder risk modeling, reduce costs, and better attract and retain policyholders.
In the commercial trucking space, many transportation companies are switching from paper logs to electronic logs [ELDs] in an effort to prevent drivers from inputting falsified data. The ELD is linked to the truck’s engine and monitors the truck’s movements and how long the trucker has been operating the vehicle. By law, truck drivers are only allowed to drive for a maximum of 11 hours each day; by keeping tired drivers o_ of the roads, the Federal Motor Carrier Safety Administration estimates ELDs will prevent 1,844 crashes and save 26 lives each year. Starting in December 2017, the use of ELDs will be a mandatory requirement for all companies in the trucking industry.
“Hours-of-service violations are one of the top violations I have seen throughout the years, and [ELDs] seem to assist in preventing them,” says Mark Sullivan, a commercial broker at Midlands Management Corporation. “Also, dash cams, along with cameras outside of units, have proven to be a great solution in preventing frivolous claims, which trucking operations seem to be an easy target for. Autonomous semi trucks, I feel, will be common in 20 years.”
A growing niche
As the wider economy continues to improve and corporate earnings rise, companies in the commercial auto space are reaping the benefits. Tonnage levels are up, and so, therefore, is the amount of insurable exposures. Before this recent boost, insurance offerings had tightened significantly – many of the commercial insurers left the space due to depressed pricing and poor industry results. Although those tough times aren’t too far in the past, commercial auto insurance is now considered a growth area.
“Those insurers who have remained in the space have tightened their underwriting appetites pretty significantly, and that has brought pricing up, and it has been increasing for several years,” says Larry Defrances, EVP of auto underwriting at Interstate Insurance Management. “Many insurers are now using massive amounts of historical data to develop predictive pricing models to better segment and select risk, making future profitability within the commercial auto insurance space a real possibility.”
Despite the positive outlook, Defrances does believe additional rate increases are needed in order to keep up with ever-increasing claims costs – but that tide could soon turn, thanks to the growing influence of technology. “Recent regulations and technical innovations within the trucking industry, including electronic log devices, telematics monitoring systems, front- and rear-facing dash cameras, lane departure warning signals, and GPS tracking systems should improve safety across the industry and help to stabilize insurance rates over time,” he says.
Although Defrances says the commercial auto space offers plenty of opportunities, he advises brokers to show a willingness to specialize if they want to be considered a serious player in the segment. Many specialty brokers are going the extra mile and providing industry-specific services the average broker cannot, such as loss control services, DOT compliance assistance and driver training programs, as well as management tools that allow fleet managers to monitor DOT inspections and claims.
“Brokers who have those skills help the fleet manager make driver intervention decisions,” Defrances says. “A lot of those services are provided by brokers who are serious about being in this sector, and we find we have good success working with that type of broker.”
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