Six factors driving commercial auto insurance costs
1. Distracted Driving Concerns
While many factors can lead to a crash (e.g., impaired driving, poor road conditions and adverse weather), distracted driving is one of the most common causes of accidents. As these incidents have become more common, insurance rates have climbed in tandem, creating a risk management challenge for insureds and a profitability challenge for insurance carriers that sell commercial auto insurance.
2. Ongoing Commercial Driver Shortage|
Approximately 160,000 commercial driver positions will go unfilled in the next decade. This ongoing shortage has placed a substantial burden on businesses, often forcing them to hire less experienced drivers. In general, less experienced drivers are more likely to be involved in accidents and tend to be costlier to insure. With no end in sight to the driver shortage, businesses will need to train drivers effectively and ensure their company makes road safety a priority.
3. Increasing Vehicle Repair Costs
Technological advancements have made vehicles safer and more efficient. However, as commercial vehicles are outfitted with a variety of sophisticated components (e.g., backup and blind-spot cameras), they are becoming increasingly expensive to repair. What’s more, ongoing supply chain issues coupled with an increased demand for certain components (e.g., computer chips) has led to inflated car part prices. Auto repair shops also have to contend with labor shortages for skilled positions. These labor shortages are increasing labor costs for vehicle repairs, as repair ships are having to offer employees higher wages.
4. Rising Social Inflation
According to the National Association of Insurance Commissioners, social inflation describes how insurers’ claims costs are increasing above general economic inflation. This is generally thought to be due to increasing litigation costs brought about by plaintiffs seeking large monetary relief for their injuries. Social inflation has affected many lines of commercial coverage in recent years, but the auto insurance market has been particularly impacted. In total, the Insurance Information Institute found that social inflation has led to a $30 billion surge in commercial auto claim costs since 2012.
5. Nuclear Verdicts
Nuclear verdicts refer to exceptionally high jury awards—generally, those exceeding $10 million. Such verdicts have become increasingly common in the past decade. The American Transportation Institute reported that trucking verdicts have increased by more than 50% each year for the past decade. Furthermore, the number of nuclear verdicts has nearly doubled during this time frame. Increasingly, insurers are having to factor in nuclear verdicts when they price commercial auto insurance policies.
6. Elevated Medical Costs
Medical costs have been rising steadily over the past decade. In fact, losses for bodily injury claims have increased by 10% over a five-year period alone. These increased costs have affected multiple lines of insurance, including commercial auto insurance. Following an accident, injuries for all those involved can vary in severity. It’s not uncommon for the injuries of those involved in an accident to require multiple doctor visits or even surgery, which can extend recovery time and influence the cost of claims. These rising costs are accounted for in the price of commercial auto insurance.
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This document is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. The information provided is only to assist you in your compliance and risk control efforts. FCCI shall not be liable for any loss, damage or expense arising out of the use of the information contained within this document. © 2023 Zywave, Inc. All rights reserved.
