The frequency and seriousness of collisions, the cost of auto repairs, the expense of medical care and hospitalization, litigation and court rulings, insurance fraud, the type of vehicle, and the deductibles are all factors that affect auto insurance prices.
This means that factors beyond your company’s control also influence the premium you will pay for commercial auto insurance premiums, in addition to your company’s inherent degree of risk.
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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 for 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 commercial auto insurance premiums. Enhancing the performance of your drivers can have a significant impact: According to a study by the U.S. Department of Transportation, driver behavior, 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.
Contact Horst Insurance if you have any inquiries about the coverage under your commercial auto insurance premiums.
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 several probable contributing causes, yet the precise cause of this alarming surge is unclear:
Density:
In terms of the distance traveled, we’ve traveled into new territory. As more people drive, there is a greater risk of collisions as well as a greater risk of 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 increase 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 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’s studies of information provided by three major insurers, the number of branded title 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. A straightforward price-based solution to the frequency and severity squeeze may be 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 shows that insurers who are growing at a profitable rate pay just one out of every five premium dollars.
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 the 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:
To prevent rising losses, insurers can precisely estimate the miles a vehicle will be driven and maintain this record throughout a policy, as underestimating mileage contributes to more than 18% of leakage and is highly correlated with frequency. Insurers can leverage a variety of new instruments, such as advanced analytics, smartphone apps, telematics, and data from connected cars, to wield more power. Insurers can refine ratings by collecting mileage at the point of sale and over time.
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Models for rating symbols:
Predictive modeling 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 be revealed early in the quote procedure if recent claims or violations. May be a problem including 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 strikes a balance between pursuing short-term premium growth. And potential lifetime policyholder profits.
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