More accidents and higher than anticipated payouts for claims hurt U.S. insurers’ profits from commercial auto policies in 2016, and explain why trucking companies are seeing higher premiums.
The financial results for U.S. insurers’ commercial auto insurance policies were the worst they’ve been in 15 years, hitting an underwriting combined ratio of 110.4 percent, according to a report released Thursday from Fitch Ratings, the New York credit rating agency.
Translated, that means for every $100 in commercial auto insurance policy premiums collected, U.S. insurers paid out $110.40, the sixth year in a row underwriting losses outpaced profits, according to the report.
Commercial auto insurance includes both liability and physical damage policies. By law, trucking companies as well as individual owner/operators are required to carry both.
The losses stem at least in part from insurers’ failure to set aside enough money to cover claims, which happens if they underestimate the frequency and severity of collisions, as well as the impact of other transportation industry trends, said Fitch Ratings Director Gerry Glombicki.
Some of those trends include higher costs for replacement parts as trucks incorporate newer technology, and more accidents per miles driven, the result of a healthy economy that’s put more people on the road. They also include large settlements and so-called “nuclear” jury verdicts for trucking-related accidents that pay out millions.
“It sounds hostile, but that’s what it is,” said Joe Rajkovacz, director of governmental affairs and communications for the Western States Trucking Association. “They’re victimizing truck drivers and companies because our legal system allows it. It’s all about the deep pockets.”
To make up the difference, insurers factor in new trends and increase their reserves, very often by increasing rates for new policies, Glombicki said.
That could explain the recent insurance premium increases reported by trucking companies, trade associations and insurance brokers that sell commercial policies to the trucking industry.
In the first quarter of 2017, commercial auto policy rates increased 5.4 percent compared to a cumulative drop of 2.5 percent for the gamut of policy types that insurers sell, according to a separate survey by the Council of Insurance Agents & Brokers. Eighty-seven percent of respondents to the Q1 2017 CIAB survey reported a commercial auto policy rate increase with their latest renewal.
Progressive Corp. was the lone company among 15 major insurers tracked by Fitch Ratings to report an underwriting profit on its commercial auto business in 2016. Progressive is the country’s biggest commercial auto insurer, with close to 9 percent market share, and serves primarily small trucking lines. In 2016, Progressive had a commercial auto underwriting ratio of 92.4 percent, which translates to making $7.60 on every $100 in premiums sold, Glombicki.
Other insurers lost the equivalent of $1 to $35.90 per $100 in premiums sold, he said.
Progressive’s superior results may have come from deliberate moves the company made in the past year to keep its commercial auto business healthy, including pulling out of new policies for tow trucks after September 2016, according to Insurance Journal.
After witnessing a mid-year, “material” spike in accidents, Progressive raised rates and took other, unspecified actions, according to the company’s 2016 annual report filed March 1.
Higher rates for commercial auto insurance premiums are likely to continue rising, as several companies have stopped writing policies, and “a sharp turnaround in results is not anticipated,” according to the report.