Second Quarter Sees 1% rise in Commercial Lines Rates

Closer attention to underwriting and losses has led to premium increases averaging 1% in the second quarter of 2017, continuing an upward trend this year. The transportation sector, most notably auto-related exposures, is seeing the highest increases, up to 4%, according to a report released today by MarketScout.

“We now have two consecutive quarters of composite rate premium increases. Insurers are adjusting pricing as they should, based upon losses incurred, expense loads and targeted returns on equity,” Richard Kerr, CEO and Founder of MarketScout said in a statement.

By account size, organizations smaller to medium-size saw the highest premium increases. Small accounts (under $25,000 premium) increased from up 1% to up 2%, medium accounts ($25,001 – $250,000) went from flat to plus 1%, large accounts ($250,001 – $1 million) were unchanged and jumbo accounts (more than $1 million) were down 1% compared to a drop of 2% the prior quarter.
By coverage class, commercial property and inland marine adjusted from down 1% in the first quarter, to up 1% in the second quarter. Commercial auto rates rose from up 3% to up 4%. EPLI also went from up 1% to up 2%. Fiduciary adjusted downward to flat or no increase compared to up 1% in the prior quarter. All other coverage classifications were unchanged from the previous quarter, according to the report.
By industry class, public entity rates moderated from up 1% to flat. Transportation risks experienced slightly lower rate increases with second quarter rates up 4% compared to 5% first quarter.

Telemetry Data: What Information Works Best?

Direct measurement of driving behavior, the heart of usage-based insurance (UBI), is the best way to match risk to premium. Insurers offer insurance discounts to safe drivers via UBI in order to acquire and retain the best risks. As a result, safer driving is promoted among these customers, which can amount to savings for organizations insuring drivers.

UBI is among the first attempts by insurers to adopt state-of-the-art technology for the underwriting process. Insurance companies and other service providers have struggled with some essential questions including those about the kind, resolution, frequency, and duration of data to collect, as well as what sensors to use. Indeed, many companies underwent independent efforts to establish data collection methodologies, generally resulting in a lack of any industry standard data “dictionary” or shared methodology for UBI. Still, it is possible to identify common approaches to collecting UBI data and how they are likely to evolve in the future.

Since the initial trials of UBI, the three cost factors—hardware, data, and analytics—have been the primary considerations as to how and what data elements each company collects. And even though prices of all three generally continue to decrease, the typical cost of setting up a full UBI program with filed predictive models remains significant. In the absence of industry-wide standards, it can be difficult to outline the breadth of the types of data collected. Even so, the following list covers most of the UBI data types found in the auto insurance market:

Verified mileage: This most basic mean of UBI is based on the well-validated assumption that more driving means more exposure to risk. Still, the advantage of verified mileage over declared mileage alone usually doesn’t justify a UBI operation for many companies.

Trip timing: A small advancement over verified mileage is trip timing. This goes beyond the pure mileage factor to estimate risk by studying when a driver is on the road, on the premise that some time slots tend to be riskier than others (Friday night, for example, with associated risk characteristics such as fatigue or drunk driving).

Driving events: Basic, yet powerful, behavioral aspects of driving are measured through collection of driving event data, mostly braking, accelerating, and turning. Sometimes absolute speeding events (exceeding 80 mph) and relative speeding events over the posted speed limit are recorded. Note, however, that onboard telematics units have relatively limited accuracy in collecting such data.

Full data log: As dongles came to market, they introduced improved collection capabilities, such as advanced GPS modules, CPU, accelerometers, OBDII, and large storage. With the falling cost of mobile data, companies started collecting full data logs and compressed them on dongles. Full data logs may provide endless analytics opportunities.

Smartphone data: The first technology to break the cost paradigm centering on device, data, and analytics is that operating from smartphones. Smartphones are also smart telematics devices owned by many, offering great collection and storage capabilities and data transfer at practically no additional cost. Unfortunately, smartphone data introduces many analytic challenges, including not knowing whether an insured is a driver or a passenger, whether the phone is turned off, and whether a driver operates an insured car.

What should we expect in the future? Against the background of rapidly changing technology and growing analytic complexity, future UBI is likely to rely on some of the following data elements:

Mobile data: As mobile apps become more sophisticated and reliable and as phone sensors become more accurate, more insurers are likely to use data obtained from mobile apps as a low-cost solution.

OEM data: Connected cars are growing in number (Gartner forecasts that by 2020, some 250 million cars will be connected). Data sets collected by connected cars aren’t as rich as those collected by dongles and provide more basic attributes (such as verified mileage, trip timing, and driving events). Nevertheless, they allow insurers to consume data more easily through data exchanges, where original equipment manufacturers (OEMs) take responsibility for the data collection process. Clearly, OEM capabilities will probably become even more advanced as manufacturers see more value from their investment.
Distribution of projected connected cars (source Business Insider)

Advanced Driver Assistance Systems (ADAS) data: ADAS can provide driving alerts and override driver inputs in certain situations. To date, these devices haven’t become part of the UBI ecosystem but can potentially contribute tremendous value to analytics for driving behavior and may play a significant role in the future.

A final question about autonomous cars: Will they render UBI obsolete? Probably not, and for two reasons. First, penetration of autonomous cars and shared vehicles may well be slow and gradual. Second, many events currently measured by UBI will probably remain important when autonomous driving is used (for example, time and destination of journeys). UBI is likely here to stay.

Lessons from Distracted Driving Awareness Month

June is Distracted Driving Awareness Month, and while it is quickly drawing to a close, the message remains: Distracted driving is escalating, with 25% more vehicle accidents resulting from drivers talking or texting on cellphones. More cars on the road, especially during summer months, also translates to more accidents.

Organizations with fleets should take note as motor vehicle crashes are the number-one cause of work-related deaths, accounting for 24% of all fatal occupational injuries, according to the National Safety Council (NSC). On-the-job crashes are also costly, with employers sustaining costs of more than $24,500 per property damage crash and $150,000 per injury crash.

Zurich sums up NSC statistics:
Employers can and are being held liable for damages resulting from employee accidents. “We might expect an employer to be held liable for a crash involving a commercial driver’s license holder who was talking on a cell phone with dispatch about a work-related run at the time of an incident—especially if the employer had processes or a workplace culture that made drivers feel compelled to use cell phones while driving,” the NSC said.

The lines believed to exist between employment-related and personal or private life get blurred in some cases involving:

  • Cell phones owned by employees as well as employer-provided equipment
  • Vehicles that were employee-owned as well as employer-owned or leased
  • Situations where employees were driving during non-working hours or were engaged in personal phone calls

To protect themselves and their employees, the NSC recommended that organizations implement and enforce a total ban policy.

“The best practice is to prohibit all employees from using any cell phone device while driving in any vehicle during work hours or for work-related purposes. Regarding off-the-job hours, precedent has been set by lawsuits. Thus employers may want to extend their policies to cover off-the-job use of company-provided wireless devices, use of personally-owned devices that are reimbursed by the company, and use of devices in company-provided vehicles. All work-related cell phone use while driving should be banned 24/7,” the NSA advised.

Companies should also pay attention to other common distractions that can lead to accidents, Zurich adds:

Marsh Tracks Top Captive Trends

The number of captive insurers continues to increase globally, from 5,000 in 2006 to more than 7,000 in 2016. Once formed primarily by large companies, the captive market has opened up to mid-size and small businesses. The industry is also seeing a trend in companies forming more than one captive, using them for cyber, political risk and other exposures, according to a recent Marsh report, Captives at the Core: The Foundation of a Risk Financing Strategy.

Organizations are seeing disruptions in a number of areas and are relying more on their existing captives, Marsh said. Because of their flexibility, captives are also being used to respond to market cycles and organizational changes such as mergers and acquisitions.

While North America and Europe still dominate in numbers of captives, other regions have shown more interest in the past three years. In Latin America, captive formation increased 11% in 2016, the study found.

Within the United States, there is more competition among domiciles and some of the newer domiciles are experiencing growth. The top-growing U.S. domiciles in 2016 were Texas, Connecticut, Nevada, New Jersey, Tennessee, and New York. Domiciles outside the U.S. seeing the most growth include Sweden, Guernsey, Singapore, Malta, and the Cayman Islands.
As organizations’ exposures increase in number, complexity and severity, shareholder funds generated by captives are becoming more important. According to Marsh:

For many clients, captives are at the core of their risk management strategy, going beyond the financing of traditional property/casualty risks.

Specifically, we are seeing an increase in parent companies using captive shareholder funds to underwrite an influx of new and non-traditional risks, including cyber, supply chain, employee benefits, and terrorism, as well as to develop analytics associated with these risks and fund other risk management initiatives.

Risk management projects funded by captive shareholder funds in 2016 included initiatives to determine capital efficiency and optimal risk retention levels in the form of risk-finance optimization; quantify cyber business-interruption exposures; accelerate the closure of legacy claims; and improve workforce and fleet safety/loss control policies.

For example, Marsh-managed captives used to address cyber liability increased by 19% from 2015 to 2016. Since 2012, in fact, cyber liability programs in captives have skyrocketed 210%.
“We expect to see a continued increase, driven in part by companies that are already strong captive users and by those that may have difficulty insuring their professional liability risks,” Marsh said.