Commercial auto insurance rates soar as oversized jury awards inflation add up

The commercial motor insurance sector has fought a decades-long, uphill battle – despite constantly rising interest rates, it has only achieved underwriting profitability once in the last 10 years – and the pressure on buyers and insurers is showing little signs of abating.

Soaring repair and replacement costs have led to higher property damage claims, but sources say liability losses, caused in large part by rising jury awards and so-called nuclear verdicts, are more of a challenge.

Inflation, supply chain problems and a lack of available labor have also increased costs and lengthened repair times, triggering incidental expenses such as temporarily renting a car or other alternative transportation costs.

After a profitable 2021 for commercial motor liability insurers, hopes for 2022 have faded. According to data and information sourced from regulatory filings, 2022 is likely to see an industry aggregate combined ratio in excess of 100% – signaling an underwriting loss – said James Auden, managing director of insurance at Fitch Ratings Inc. in Chicago . The commercial car claims rate “has gone up quite a bit,” he said.

Pressure on claims costs has pushed up commercial insurance rates, which have risen and continue to rise. The third quarter of 2022 marked the 45th consecutive quarter — or more than 11 years — of increased commercial auto premiums, according to the Council of Insurance Agents and Brokers.

“We’ve delivered double-digit rates every quarter since mid-2019,” said Chris Kopser, chief underwriting officer, primary casualty, Americas, for Axa XL, a division of Axa SA. Axa XL’s business includes large fleets with high deductibles such as: B. National retailers.

READ :  Campbell Insurance Agency Inc. offers affordable auto insurance in Omaha and Bellevue, Nebraska

“The inflated costs for the same repairs and medical treatment are in the tens of digits or higher on most commercial car books,” Mr. Kopser said. “That means if you don’t have that amount on your book every year, your loss ratio will get worse because you’re not getting enough premium to cover the projected losses.”

Manuel Padilla, vice president, risk management and insurance, at MacAndrews & Forbes Inc., manages a fleet of executive cars that were renewed in July 2022 and he is beginning his 2023 renewal process Prices will go up again,” he said.

Mr Padilla, who also sits on the board of Risk & Insurance Management Society Inc., said that with the exception of 2021 “it wasn’t uncommon to see premium increases of 20%, 30%, 40% annually.” He added that he is exploring the use of a prisoner in preparation for the forthcoming renewal.

Inflation, supply chain constraints and increased use of technology have increased the cost of physical damage losses.

Dave Carlson, Cleveland-based US automotive and manufacturing practice manager for Marsh LLC, said, “Components in cars are more expensive today.”

For example, a bumper that used to be just a piece of steel has “morphed” into an injection molded, integrated piece of equipment that supports sensors, lenses and other technologies. “A bumper is a lot more expensive than ever,” said Mr. Carlson.

Labor is also a problem, reflecting deficits in the overall economy.

Nicole McMurtry, director of the national transportation sector at USI Insurance Services LLC in Oak Brook, Illinois, said she has fleet customers who have raised wages for diesel mechanics by 50% to 75% to attract and retain a skilled workforce. “You may have the parts, but you don’t have the staff to fix all the vehicles that need servicing,” she said.

READ :  Families say housing management ignores them after burst pipe evicts them - WISH-TV Indianapolis News | Indiana weather

Truck drivers are also in short supply, with many older truck drivers retiring and not being replaced or changing jobs to work and drive closer to home.

Although the cost of physical damage is rising, sources say increased liability costs — in the form of settlements, litigation and judgments — are by far the larger cost component and challenge facing the commercial automotive sector.

The outsized settlement figures dwarf an increasing frequency of five-figure car repair bills, sources say.

“We are seeing social inflation on the liability side that is driving up claims costs and combined ratios, and insurers are responding with rates,” said Nick Saeger, associate vice president of products and pricing at Sentry Insurance in Stevens Point, Wisconsin.

In a high-profile case, a Nassau County, Fla., jury has awarded more than $1 billion in damages in a 2021 wrongful death count in a truck accident in Melissa Dzion against AJD Business Services and Kahkashan Carrier , according to local news reports . The award included $900 million in punitive damages.

In November 2021, a Texas jury awarded the survivors of Toni Combest, a 73-year-old great-grandmother who was killed in a 2016 collision with an oversized truck carrying a propeller for a US Navy, a total of US$730 million. Dollars to nuclear submarine.

The Combest jury ruled in the Ramsey et al. $480 million in compensatory damages and $250 million in punitive damages. v. Landstar Ranger Inc. et al.

In another high-profile case, an accident involving a truck involving Walmart Inc. and actor/comedian Tracy Morgan in June 2014 reportedly cost the retailer around $100 million.

READ :  What to do when your term life insurance ends?

The American Transportation Research Institute examined information on 600 cases between 2006 and 2019. In the first five years of data studies, there were 26 cases worth over $1 million, and in the last five years there have been nearly 300 cases. The number of judgments over 10 million dollars has almost doubled.

ATRI also documented that the size of judgments increased by 51.7% annually from 2010 to 2018. Standard inflation grew at an annual rate of 1.7% and healthcare costs increased at an annual rate of 2.9% over the same period.

Axa XL’s Mr. Kopser said such high honors, while exceeding policy limits, set an example for future cases. “Today’s ceiling is tomorrow’s floor,” he said.

He added that excessive loss caps have been significantly reduced, with lead shield lines typically $25 million now being offered in smaller $15 million or $10 million increments, with some as low as $5 million , and that towers previously only $1.2 billion can assemble $800 million. “You couldn’t build a tower that big today,” he said.