Poor Commercial Auto performance means increased rates in Arizona!
A trend that I am seeing throughout the marketplace in Arizona is the deteriorating commercial auto insurance sector (personal auto too). When I sit down with the marketing representatives for the insurance companies I represent, I keep on hearing the same song: “Commercial auto rates will continue to increase due to unprofitable results”. According to Fitch Ratings, Inc.(http://www.businessinsurance.com/article/00010101/NEWS06/912313666/Commercial-auto-puts-brakes-on-insurer-profits) “The commercial auto line continues to create a profit drag for U.S. property/casualty insurers,” on their U.S. Commercial Auto Insurance Market Update back in May 2017.
In the summary of commercial auto performance results, Fitch Ratings, Inc. states that the segment has produced an underwriting loss for six consecutive years in a row! This is also consistent with the results that I am seeing in Arizona. When insurance companies identify loss patterns, they tend to take action in the form of:
Rate Increases- Increasing premium to offset future losses
Stricter underwriting process
1. Reducing credits available to individual policy holders performance
2. Eliminating or reducing mono-line only auto accounts
3. Coverage closely scrutinized by the underwriter. Ex. “Any” auto vs. “Scheduled” autos.
In providing reference, take a look at the following:
In 2010 (just 8 years ago- 2010 model came out in ‘09) – The Invoice cost for a base F150 was $20,683 (http://www.jdpower.com/cars/Ford/F-150/2010)
In 2017 (2018 model) – The invoice cost for a base F150 is $26,011.
In just 8 years, the price of the Ford F150 has increased by 32%. Insurance companies are trying to catch up to this trend in balance with poor underwriting performance. Some insurance companies have already followed suit with premium increases while others in the process.
The days of being able to get a premium of $1k in premium per vehicle (fleet) in Arizona are gone, at least for now. I typically see premiums being rated without credits depending on the industry from $1,200 to $2,500 per vehicle (trade contractors, retail, manufacturing, etc.). This does not include transportation or delivery operations, which can range from $4.5k to $16k per vehicle. Some prospects/clients still expect to see commercial auto premiums at 2010 levels. Understanding the environment can help you to take proactive steps so your account will be a “premium or target” account to an underwriter.
Being a driver on a commercial auto account is a privilege and not a right. Tighter controls on the top side can be to your advantage.
What can you do as a business owner with commercial vehicles to reduce your risk and premium?
MVR (Motor Vehicle Record) – Pull the Potential Employee’s Motor Vehicle Record before hiring (https://servicearizona.com/). Before hiring, have the potential employee provide a copy of his/her MVR. It costs $3 and provides a 3 year history. Provide that MVR to your commercial insurance agent for review. This will save you time and money on the Human Resources side.
Driver Awareness/Driver Safety Programs – Provide all drivers and employees a safety awareness programs on a monthly basis. Reinforcement and consistency is the best recipe for success. Also, a reward system for good driving results (minimal at fault losses) can be a motivator for employees to focus on the road. You will find that reward system will far outweigh an increase in premium due to poor loss history. Also, implement a distracted driver/cell phone policy!
Vehicle Inspection – Inspect the vehicles that are provided to employees on a weekly basis. I am usually told from my clients that the best employees and less accident prone are those who keep their truck/car cleaned. Basically, they show ownership of the vehicle. I do not have numbers to support this claim, but this is what I hear from my clients on a consistent basis. Also, this is a commercial policy and should not be used for personal use. If a driver takes a vehicle home on a daily basis, make sure when they are not working or in the process of working, the vehicle is not used. This will limit your exposure significantly.
Credit Report for the employee. For rating purposes, Arizona is a credit based model. With commercial auto insurance, insurance carriers will pull different credit scoring models such as Dunn & Bradstreet. A good credit score will get you better pricing. Generally speaking with credit based scoring model, a person with a better credit score will usually have fewer accidents. *Before implementing this practice, discuss this with your Human Resources manager and be sure not to violate Employment Practices Liability (i.e. Discrimination)
Loss Prevention Resources – Most insurance companies are trying to get a grasp on this underperforming line of business. In doing so, they are providing resources to the insured to help mitigate losses. Some of these resources include a dedicated loss prevention website that has videos and white paper (best practices) to assist your business with your monthly meetings. Also, companies like Liberty Mutual are providing programs such as (15% credit if participating) driving telematics (GPS). These devices are installed on the participating vehicles and you can view on your computer/screen where each vehicle is at any given time. Information such as hard braking, speeding, etc., is also obtained for your use.
Random Drug Test Screening – This can be performed by an independent company and usually the company performs the gathering of information remotely or on the job site. This practice can reinforce the pool of candidates required to perform the job skills; skills that involve driving a vehicle.
Lastly, ask your insurance agent for assistance with some of these items or ideas. We have access to libraries of loss control marketing slicks. These range from Vehicle Safety Programs, Driver Selection, Driving Tactic and Information, Self-Performance Evaluations and more.
If you have any questions about your current commercial auto policy or are looking for quotes on a new one, reach out to us here.