Fighting Commercial Auto Frequency, Severity Drivers With Technology

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 last week.

There’s been a focus on commercial auto underwriting losses and the extended period of heightened claims severity that has resulted in increased pricing, said 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 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 One Beacon, 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 that sit in on depositions to assist adjusters and defense counsel in mapping out a successful 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 key driver of both personal and commercial auto loss frequencies. Since iPhones came on the market, the combined ratio in both personal and auto lines has climbed from 90 to 110%, said Chen. Class action lawsuits have been filed against Apple, alleging the company hasn’t done much to deter cell phone use while driving. Chen explained that while Apple’s latest update, iOS 11 does offer a do not disturb while driving feature – it can detect driving and when a text or call is received an auto reply notice is sent indicating the recipient is behind the wheel – it is by opt-in only.

Telematics is key to bringing down frequency, said Stanco. Cottingham noted that fleets with telematics experienced double-digit reduction in losses.

Typical telematics monitoring includes vehicle and fuel tracking, as well as acceleration, hard braking, cornering and hard stops, Chen said.

Whether monitoring by cell phone or by vehicle, Stanco said companies do report some implementation issues. Some employees welcome the tracking technology, while others feel it’s invasive.

Either way, tracking works to modify driver behavior.

“Accountability is a huge deterrent,” said Chen.

Chen said that while easy to deploy on business cell phones, it sometimes can be challenging to deploy telematics technology on a driver’s personal cell phone. In this case, his clients have had success when they offered an incentive – reimbursing personal cell phone costs contingent on deployment.

The LifeSaver co-founder said that cameras, cell phone blocking and vehicle tracking are valuable technology to have in commercial vehicles today.

McCarthy added that companies that don’t adopt and monitor technology risk assessment of punitive damages in cases where evidence points to the company having the ability to do so.

Insurance Journal was a sponsor of the summit that was hosted by eServices, a division of Energi that provides a turnkey risk management, claims and marketing technology for companies.