How to reverse rising combined ratios in commercial vehicle insurance

How to reverse rising combined ratios in commercial vehicle insurance
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Key Takeaways
  • High combined ratios and a lack of data in commercial vehicle insurance has long been an issue.
  • Insurers & policyholders are increasingly seeing the value in UBI and BBI solutions to help solve for this.
  • Smartphone-centric solutions can lower frequency & severity, and improve overall business efficiency.

For nearly a decade, commercial vehicle insurers have faced rising combined ratios, and thus difficulties remaining competitive in a transforming industry.

“Pricing increases alone have been insufficient. The chronic underwriting losses in commercial auto in the last eight years reveal a need for change in several areas including risk selection, underwriting practices, and claims.”

– James Auden, Managing Director, Fitch’s Insurance Ratings Group, Reinsurance News

More vehicles on the road (and more miles driven), worsening driving behavior including distracted driving, and high demand for commercial drivers have led to high loss frequencies. Related to poor driving behavior, the Federal Motor Carrier Safety Administration (FMCSA)’s Large Truck Crash Causation Study showed that 87% of all crashes where commercial vehicles were at fault were due to driver errors, with 38% due to driver decision errors like speeding.

Severity has also increased due to inflation, leading to higher costs for parts and labor, as well as skyrocketing litigation and health costs.

Of course, rate increases and big drops in driving due to the pandemic turned 2020 into the year commercial vehicle insurers saw their best underwriting results in a decade. But prior trends tell us this luck likely won’t last, especially as the pre-pandemic numbers of drivers on roads return.

“...future profitability [in commercial auto insurance] may be challenged as driving activity returns to past norms, while claims severity patterns remain problematic and pricing momentum may have peaked.”

- Insurance Journal, May 2021

Above all, a big challenge across the industry remains: the lack of data. Filling a gaping hole of missing information around driving behavior would help insurers understand fleet risk and improve overall operations for their clients.

The solution? New-age, smartphone-centric telematics programs, powered by the right Mobility Risk Intelligence (MRI) provider. Below, we’ll explore how MRI helps insurers remain competitive in a transforming, increasingly data-driven industry - now and in the future.

A strengthening case for Mobility Risk Intelligence in commercial vehicle insurance

Sure, telematics is nothing new. But Mobility Risk Intelligence providers, equipped with state-of-the-art technology, massive amounts of reliable data, and a truly global presence, are breathing new life into the programs of the past.

Originally, the commercial auto insurance industry has been slower to adopt telematics solutions versus the personal lines market. 

Reasons for this vary from insurer to insurer. For one, the lack of adoption may be because commercial insurers wanted to dodge tech costs. But today, smartphone-centric solutions that don’t require additional hardware fees are low-cost and highly scalable, introducing an economical option to the industry. 

They’ve also been inherently a high-touch business, involving a broker in almost every case, and were thus slow to embrace digital transformation. And when it came to their business customers, some commercial drivers were initially anti-telematics, perhaps not wanting their employers to follow their driving behaviors. But this perception is also changing.

“Commercial drivers were [quite] anti-telematics at the offset. They didn’t want their bosses paying attention to every move they made behind the wheel. But again, that perception has changed over time as drivers realize the benefits of telematics solutions.”

- Insurance Business America, December 2020

Ultimately, insurers and their policyholders are realizing the strong value proposition for leveraging Mobility Risk Intelligence. The right usage-based or behavior-based solution will use massive amounts of data to:

Lower frequency

  • Coach drivers at scale and fuel better hiring standards with data
  • Introduce better visibility into fleet operations, including for overall risk profiles, geofences, and location tracking

Lower severity 

  • Deliver automatic collision notifications to drivers
  • Automate the FNOL

Improve fleet operations

  • Manage commercial drivers and location of vehicles
  • Make critical decisions around contextual insights such as nighttime and highway driving behavior 
  • Make timely and well-informed decisions around vehicle health and maintenance

When all of these benefits related to vehicle care, driver safety, and overall business efficiency weave in with commercial vehicle insurance, it gives businesses an opportunity to substantially save on their premiums. These savings can lead to better products and services for consumers.

So with safety and efficiency on businesses’ minds, commercial telematics programs have transitioned from nice-to-have to must-have solutions for operating fleet-focused businesses. In fact, 93% of mid-market business owners would be willing to invest in telematics if it would improve driver safety, and 90% said that the benefits outweigh the financial cost of the technology. 

And in a 2021 survey of its business customers, Farmers Insurance found that 75% said they would use telematics technology if it meant additional savings on their insurance policy.

What’s next? Choosing the right behavioral risk management solution 

There’s no doubt that today, commercial vehicle insurers who choose to embrace digital solutions are reaping the benefits. 

And those who invest in smartphone-centric telematics programs are unlocking effective, low-cost ways of reversing their climbing combined ratios. That’s all while strengthening their policyholders’ overall fleet safety and business efficiency, empowering them to make better data-driven decisions in an industry that’s long suffered from a lack of data.

As for the next steps in commercial insurers’ behavior-based journey, it’s important to understand what’s in an effective, robust behavioral fleet risk management solution. So in closing, here are some of the top features to look out for when choosing a Mobility Risk Intelligence provider.

Top features to look out for

  • Behavioral coaching to drivers via a smartphone app (no additional hardware required). The right solution will help fleet managers coach their drivers at scale, and improve hiring standards. Fleet managers can see a full list of their drivers, and sort them based on location and performance.

  • Driving reports for drivers. Team and individual driving will help drivers easily understand what they’re doing right and wrong, and how to improve. (Users of Zendrive’s behavioral risk management solution, for example, have seen collision risk reduce by 49%).
  • Behavioral trends and areas of focus. Fleet managers will get access to driving behavior trends to better understand which areas need improvement, and to make decisions accordingly.
  • A highly intuitive fleet dashboard. User-friendly dashboards will help identify and mitigate collision risks. In just two clicks, fleet managers can access driver-level details. 

  • Driver risk segmentation and analysis. Understand and accurately segment fleet drivers based on driving behavior to help you best identify preferred risk. 
  • Automatic collision detection, notifications, and FNOL. Support commercial drivers in their moment of truth. Automatically detect collisions, notify drivers and managers, send for emergency help if needed, and trigger an automated FNOL in seconds.
  • Improved fleet operations overall. Provide businesses with access to critical information like the location of drivers/your vehicles, nighttime and highway driving occurrences and behavior, and more.

Learn how Zendrive’s behavioral fleet risk management solution does all of the above and more, or book a call directly with one of our experts below.

Book a call

How to reverse rising combined ratios in commercial vehicle insurance
Syed Ali Haris
VP of Enterprise Product Marketing
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