Commercial Auto Rates Up; Sector Ripe for Rapid Change

Someone up above has been listening. How else can one explain the hardening market that has been the subject of thousands of prayers. Both agents and E&S vendors, then, should be doubly excited about the commercial auto market, which is showing signs of rapid change.

On the surface, change has taken the form of increased rates, a result of insurers inability to stomach inadequate rates and rising physical damage loss costs. The underbelly of this line reveals speculation that roughly a dozen insurers-including many standard insurers-are considering dropping the line or will be forced to when traditional reinsurance pulls back.

Loss ratios for the line have been increasing for the line in Texas for the last three years, from 67.3 percent in 1997 to 76.9 percent in 1998 to 80.8 percent in 1999. They’ve increased nationally from 68.1 percent to 76.2 percent during the same three-year span.

Madison Macon, a Carolina Casualty vice president, said first quarter 1999 was when their company began transitioning to higher rates. “Our rates were woefully inadequate for too long. We were hurt pretty bad in 1999,” Macon said, citing a national combined ratio for the year of 125.

Carolina Casualty is not alone. Paul Van Wagoner, president of Van Wagoner Cos. in Plano, says physical damage rates, which is all they offer, have increased appreciably. Premiums have gone from 2-4 percent of the actual cost value of a unit to 4-6 percent.

Ron McElyea, president of Western Surplus Lines Agency in Abilene, says he’s seeing commercial auto liability rates up about 15 percent and physical damage rates up 25 percent. “But for long-haul trucking it’s up more like 50 to 75 percent,” McElyea said. “Long-haul is transitioning very rapidly.”

One of the outgrowths of insurers changing their come-all policy toward the trucking industry has been a tightening in the underwriting process. Up until this point, McElyea said as an example, there had been quite a bit of leniency for drivers under the age of 25. “But now, many carriers won’t allow anyone under 25. And if they’re between 25 and 30, the should be relatively clean.” Companies are also looking closely at the radius of the operation and requiring more inspections.

According to McElyea, applications must also be completely filled out. “This really frustrates the retail agent,” he said, adding that because many of the agents are going through the effort to complete applications, many are shopping accounts more. “I’m guessing they figure they’ve got the app filled out, why not shop it?”

Carolina Casualty, according to Macon, has tightened its underwriting grip, as well. “We’ve always been an underwriting company,” he said. “But now we’re enforcing the rules a little more.” One of the things Carolina has done to maintain stewardship of the accounts it writes is pull back all credit authority from MGAs and brokers.

These new restrictions should hardly bother MGAs and E&S brokers, who have been seeing a tremendous increase in submissions. Robin Stough, president of RISC, says trucking submissions are up between 30 percent and 40 percent from the same time last year, and Van Wagoner has seen submissions almost double.

However, McElyea doesn’t think the transition, which began last year, has run its course. “We are looking at at least a year to 18 months before we can say the market is or has hardened.”

Topics Trends Auto Agencies Commercial Lines Business Insurance Pricing Trends