Your Commercial Auto Insurance Premiums, Frequency, and Severity

Apr 5, 2023 | Business Insurance

The frequency and seriousness of collisions, the cost of auto repairs, the expense of medical care and hospitalisation, litigation and court rulings, insurance fraud, the type of vehicle, and the deductibles are all factors that affect auto insurance prices.

This means that while your company’s inherent degree of risk is a factor that influences the premium you will pay for auto insurance, that amount is also influenced by factors that are not directly under your company’s control.

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Severity versus Frequency

The percentage of your premium that covers losses is impacted by both accident frequency and severity.

The number and frequency of crashes are referred to as frequency. Inevitably, insurers will pay out more claims when the premium is greater. Instead, the severity is represented by the amount paid each claim.

Your rates may be impacted by the brand and type of your vehicles as well as your level of risk.

Techniques for Risk Management

Implementing risk management strategies to reduce accident frequency is one of the finest things you can do to reduce the cost of your auto insurance. Enhancing the performance of your drivers can have a significant impact: According to a study by the U.S. Department of Transportation, driver behaviour, attitude, and action caused 90% of all collisions. Making your drivers more cautious and investing in dependable vehicles will reduce accidents’ frequency and severity, which will ultimately cut your premiums. The following are some actions to take:

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Pick dependable drivers:

Obtain driving records for all vehicles and run background checks.

Driver Safety:

Ensure that both new and experienced personnel are adequately prepared by regularly providing driver safety training, both at hire and as a refresher.

Teaching Staff:

Teach staff members how to report a loss right away following a collision.

Eye on Driver:

To achieve the optimum performance, drivers should be watched.

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Added Value to Your Premium

Data from the National Council on Compensation Insurance (NCCI) shows that automobile accidents are the cause of the most expensive lost-time workers’ compensation injury claims.

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This Risk Insights is not meant to be comprehensive, and no discussion or view should be taken as legal advice. For the best guidance, readers should speak with a lawyer or an insurance expert.

Potential contributing Factors

There are a several probable contributing causes, yet the precise cause of this alarming surge is unclear:


In terms of the distance travelled, we’ve travelled into new territory. As more people drive, there is a greater risk of collisions as well as a greater risk from having more automobiles close together.

Distracted driving:

According to the data below, a lot of drivers engage in risky driving practices. As interactive technology becomes more commonplace in our culture, the distraction it causes while driving may be increasing the number and severity of claims for insurers, as well as the potential cost to society.

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Faulty automobiles:

Since 2012, there have been more newer cars on the roads, although there is still a contradiction between the two. Newer automobiles increase the severity of property damage claims, whereas a small but growing number of older vehicles with safety problems may contribute to the rise in severe accidents. According to Verisk studies of information provided by three major insurers, the number of branded titles vehicles with prior total losses and those assessed to be mechanically unrepairable has increased by more than a factor of two during the previous five years.

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Strategies for Insurers

The number and severity of auto insurance claims have both reached pre-recession levels. This is a problem for the sector. This may be connected to the recent rate increases by numerous insurers. But given the wider industrial turmoil, these trends could not have occurred at a worse moment. Insurance companies are under increased pressure to improve the client experience and improve underwriting and rating than ever before from rivals who are leveraging technological and analytical advancements. And it’s possible that a straightforward price-based solution to the frequency and severity squeeze is insufficient.

Although personal auto insurance premiums increased by 5.5 percent in 2015, the increase was insufficient to offset rising losses. The adjusted loss ratios for auto insurance increased by approximately two and a half percentage points in 2015, according to statistics submitted to A.M. Best. Additionally, a Verisk study of this data over the previous three years reveals that just one out of every five premium dollars are paid by insurers that are growing at a profitable rate. **

According to John Petricelli, vice president of Verisk – insurance solutions, “we estimate premium leakage—revenue lost through misreported or omitted underwriting information—is costing car insurers an amount equal to between 10 and 15 percent of direct written premium annually.” According to the 2016 Verisk Auto Insurance Premium Leakage Survey, nearly half of insurance leaders said they were “very concerned” or “very concerned” about premium leakage, and more than 80% said they were at least “moderately concerned” about it. However, there are resources accessible to address this issue. A variety of cutting-edge options are available to insurers that can better match risk and premium and maintain that alignment over time:

Solutions for underestimating mileage: 

Since underestimating mileage contributes to more than 18% of leakage and is highly correlated with frequency, precisely estimating the miles a vehicle will be driven and maintaining this record over the course of a policy can help stop rising losses. Insurers can be given more power by a variety of new instruments, like as advanced analytics, smartphone apps, telematics, and data from connected cars. Refined rating is made possible by collecting mileage at the point of sale and over time.

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Models for rating symbols: 

Predictive modelling that takes into account frequency and severity by make and model can assist insurers in adjusting to the rising costs of repair for contemporary auto technology.

Loss history indicators and solutions for driver monitoring: 

Because rate hikes brought on by a hardening market are becoming more frequent and severe, insurers will experience an increase in prospective clients shopping around. Cost-effective alternatives that can reveal early in the quote procedure if recent claims or violations may be a problem include loss history indicators and driver monitoring.

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Prioritized pursuit: 

At the point of sale and renewal, insurers can use sophisticated risk scores and projected losses for different categories of drivers and vehicles—for instance, a safe driver with a minor infraction or a vehicle with a branded title—to help guide decisions that strike a balance between pursuing short-term premium growth and potential lifetime policyholder profits.

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