Combined ratios have been consistently rising over the years. In fact, the commercial auto sector’s average combined ratio has remained over 100 percent for eight years and was predicted to remain so for another two years prior to the COVID-19 pandemic.
While 2020 combined ratios were the best they’ve been in years (due to less drivers on the road), don’t expect the trend to continue. As drivers continue returning to the roadways, combined ratios will rise again, only further stressing the need for technology and an increased focus on customer relationships.
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The current state of the commercial auto segment
The commercial auto insurance segment reported in 2020 its best underwriting result in a decade. The commercial auto combined ratio of 101.6 for 2020 was close to eight percent better than the 2019 rate. While the big drop in driving due to the pandemic caused this push into profitability, it’s important to know that this isn’t likely to continue in the future.
Instead, maintaining this profitability will prove challenging as driving continues returning to normal levels. Increased costs from rising litigation and larger verdict settlements are instead more likely to weigh on profits in the future. Regular increases in claims severity have been key in the underperformance of commercial auto carriers over the past decade, making it integral to intervene where possible in claims reduction.
Rate increases will continue onward, with auto projected to have a whopping 14 percent average yearly pricing change. This aggressive pricing approach is due to the desire to maintain current levels of profitability while at the same time making up for years of unprofitability.
Low interest rates have also restricted insurers’ ability to make up for underwriting losses with investment income. As a result, carriers are looking to drive strong underwriting results, with the margin for error continuing to shrink, leaving little room for error in accurately pricing risk.
The use of technology and an increased focus on customer relationships is more important than ever in ensuring carriers maintain profitability while reducing claims and driving strong underwriting results. What if there was a solution that could do just that, reduce the burden of annual motor vehicle record (MVR) pulls while also protecting your customer’s bottom line and driving down costs for your business? It may sound too good to be true, but we promise it isn’t.
Why annual MVR pulls are a thing of the past
Despite being a decades-old best practice, annual MVR pulls are an antiquated method in identifying and managing driver risk. One of the biggest issues with manual MVR pulls is that they represent a static moment in time.
Take for example a company who only pulls MVRs annually. If a driver of theirs has their MVR pulled January 8 and receives a DUI on January 10, that company will only be made aware of the violation the next calendar year. This makes companies reliant on employees self-reporting, which presents significant challenges in accurately pricing risk.
Recent violations are a strong indication of future crashes. Data conglomerated from over 20+ years of SambaSafety driver data shows that a history of reckless, careless, inattentive or negligent driving increases the likelihood of a crash by 64 percent.
That’s why companies who rely on annual MVR pulls to identify the riskiest drivers open themselves up to immense risk. If that driver with the January 10 DUI were to cause a crash, the company can be held liable for negligence, likely resulting in a costly court case.
When incidents like this happen, they not only hurt the customers with these drivers, but carriers as well. Customers get slapped with unplanned costs that can take them from green to red. Carriers, with each additional claim added on because of high-risk driving behavior, find it harder and harder to maintain healthy combined ratios and keep rates lower.
That’s why it’s important to stick with the mindset of “out with the old and in with the new.” Affordable solutions like driver monitoring exist that help transform the way in which driver risk is managed, negating the need for annual MVR pulls.
The customer impact of driver monitoring
Encouraging customers to implement driver monitoring provides them with the insight needed into their driver population to move from reactive to proactive driver risk management. Driver monitoring allows companies to identify negative driving trends and intervene before their driver causes a claim.
There are many actions that can be taken to prevent drivers from causing the next crash, whether it be having conversations, driver training enrollment, reassignment to non-driving positions or, in extreme cases, disqualifying them. Companies will not only save money by reducing crashes, but also through employee retention.
Courts and attorneys know solutions like driver monitoring exist and the benefits that they bring, dismantling the age-old defense of “not knowing.” Which is why mandating driver monitoring, or even simply recommending it to your customers, will demonstrate how you’re actively working to assist in saving time and money.
Think of offering an initial discount upon driver monitoring implementation. Consider even utilizing ongoing incentives like reductions in future premiums if companies can show they’re taking action on high-risk drivers and actively improving their risk profile, reducing claims frequency.
Such efforts will build stronger customer relationships in the long-term. As was proven this past year, whether in times of economic prosperity or turmoil, relationships go a long way.
Four ways driver monitoring impacts carriers
When recommending driver monitoring to customers, carriers can benefit in many ways, including:
Drive down overall loss costs
Driver monitoring positively impacts loss frequency, bringing down overall loss costs. Investing in proactive customer risk management strategies focused on prevention means fewer claims. Fewer claims will lead to lower combined ratios, improving customer profitability for those who adopt driver monitoring.
Price policy accurately
No longer do risk consultants and underwriters must work in silos. Driver monitoring provides in-depth data and analytics, which acts as a shared tool to reduce overall risk. Carriers can better assess risk and price policies with more accuracy than ever before as a result.
Understand in-depth company risk profiles
SambaSafety’s driver monitoring platform provides a detailed look at a customer’s overall risk profile with detailed analytics, showcasing the changes over time. Companies can better identify and address high-risk driving behaviors, allowing carriers to track the success of their policyholder’s intervention efforts.
Better price renewals
Sharing customer data with underwriters during the renewal phase will allow them to better price risk based on actionable insight and data. Underwriters will be able to price renewals more effectively when seeing the positive impact intervention efforts are having. Insight into reductions of common violations as well as crashes enables carriers to offer the best priced policies while not worrying about negatively impacting underwriting profitability.
Position yourself as your customer’s invaluable partner
Offering tools like driver monitoring allows carriers to position themselves as an invaluable partner instead of simply a coverage provider. An unmatched customer experience showcases the investment in and continued dedication to the fiscal success of each customer.
To learn how you can ensure you’re accurately pricing policies that save your customers money and protect your overall commercial auto combined ratios, download our white paper.