Fighting Drivers of Commercial Auto Frequency, Severity
Litigation financing, distracted driving and unexpected verdicts are just some of the factors impacting commercial auto frequency and severity, according to panelists speaking at the 2017 Risk Management Summit this week in Las Vegas.
There has been a focus on commercial auto underwriting losses and the extended period of heightened claims severity that has resulted in increased pricing, according to Brian McCarthy, moderator and CEO of Mass.-based Energi Insurance Services (EIS), a nationwide insurance program provider.
That’s led to commercial auto being thought of as “an albatross in the insurance industry,” said McCarthy.
Scott Cottingham, a senior broker who manages Aon’s $300 million transportation business across the U.S., said that for every dollar made, the industry is losing $1.02 on commercial auto.
One reason for the line’s adverse results is that claims reserves are being set lower than the final payout, said Randy Stanco, senior managing director at Aon Benfield.
Cottingham said that where nuclear verdicts in the past would have been around $5-6 million, it’s not unusual to see $10 million verdicts even in cases with decent facts. This, he said, has led to a common conversation with policyholders who are on the fence about the amount of insurance they should have. They wonder whether they should buy $50 million in coverage or just bury their company in debt, have $1 million in coverage and say, “Here are the keys to the business” — since $1 million is a typical starting point in settlement negotiations.
While large verdicts can arise from known pro-plaintiff jurisdictions, litigation financing is also a factor driving severity, said Robert Woods, president of eClaims Management, a part of EIS. There are several firms offering litigation financing options and some plaintiffs have even started online Go Fund Me pages to cover their lawsuit costs.
Medical malpractice attorneys have migrated to financed auto cases where their expertise can be transferred readily, he added.
Woods, who previously worked at CNA and OneBeacon, emphasized the need to identify and aggressively defend these types of cases. EIS does so by employing an accident reconstructionist on staff, as well as five litigation consultants who sit in on depositions to assist adjusters and defense counsel in mapping out a defense strategy.
Technology is one way to defend against rising severity and frequency, panelists said.
According to Ted Chen, co-founder of LifeSaver, which offers a free mobile app that blocks cell phone calls and texts while driving, distracted driving is a main driver of both personal and commercial auto loss frequencies.
Telematics is key to bringing down frequency, said Stanco.
Typical telematics monitoring includes vehicle and fuel tracking, as well as acceleration, hard braking, cornering and hard stops. “Accountability is a huge deterrent,” said Chen.