The commercial auto insurance industry’s combined ratio improved slightly during the pandemic, but not enough for insurers to reduce their rate increases this year, according to the 2021 U.S. Transportation Market Outlook by Risk Placement Services (RPS), the E&S wholesale broker and managing general agency.
The combined ratio improvement in the Transportation industry can be attributed to fewer cars on the road due to the government-ordered shutdown. But there was higher severity among the claims that were reported, and as the country reopens and travel resumes, insurers are expecting claims volume to ramp up again.
This surge in Transportation activity has amplified many issues that were affecting rates prior to the pandemic, such as a driver shortage. Increased business volume is further forcing up freight costs that had been steadily climbing pre-pandemic in response to higher fuel and maintenance costs, increased use of telematics and the larger salaries needed to attract drivers.
Additionally, developing losses associated with nuclear verdicts, litigation funding, social unrest, natural catastrophes and business interruption continue to erode insurer profitability this year.
“The Transportation industry has been plagued with losses for nearly a decade, despite year-over-year double-digit rate increases,” said Mark Gallagher, Vice President, National Transportation Practice Leader, RPS. “The pandemic may have allowed the industry to catch up slightly, but the need for a continued rate push is still prominent. It’s important to note, carriers also have to balance that with their desire to retain their business.”
Primary coverage is still widely available for most Transportation accounts, but premium hikes continue to accelerate.
The increase in claim severity has led to higher settlement costs, putting pressure on excess carriers. In fact, most first-layer excess carriers are seeking double-digit rate increases, limiting capacity and reducing their exposure on each individual risk.
Trucking is perhaps the hardest hit class of commercial auto insurance in the current market. Standard carriers are limiting capacity, especially for distressed fleets with poor loss experience and unacceptable safety scores. Standard markets also are lowering limits on primary policies to below $2 million, forcing buyers to purchase more excess coverage to obtain desired coverage levels. At renewal, carriers are seeking premium increases on existing accounts that had already been averaging between 10% and 15% increases year-over-year since 2010.
The pandemic also took a toll on public auto, but many rideshare services reinvented themselves as specialized delivery services or non-emergency medical transportation for COVID-19 patients. While insurers were lenient on companies that downsized or suspended their operations, they re-rated those that changed their business models based on whichever class of business generated the most premium. For example, if a limo service transitioned into nonemergency medical transportation, its premiums could grow from $3,000 to as high as $12,000 per vehicle.
Other findings of the RPS 2021 U.S. Transportation Market Outlook include:
- Global supply chain shortages during the pandemic put significant pressure on intermodal trucking, one of the fastest-growing segments of the Transportation industry. However, due to the complexity of intermodal trucking operations, which involves the use of two modes of transportation to transport freight from shipper to consignee, underwriters are reluctant to underwrite this difficult class of business.
- Although demand surged for last-mile delivery services during the pandemic, few carriers are willing to write coverage for this class of business, which includes many independent contractors using their own vehicles.
- A provision in the highway funding bill that would increase minimum liability insurance limits from $750,000 to $2 million could put even more pressure on insurers that are already cutting back on the amount of coverage they are willing to write on a single risk.