Pre-Pandemic Traffic Levels Could Be Trouble For Commercial Transportation Premium Rates

For the first time in over 10 years, auto losses are down. Claims fell as pandemic lockdowns and shutdowns reduced miles traveled. Right now, there are still less drivers on the road while e-commerce and delivery are at an all-time high. A return to congested roads, however, could spell disaster for commercial delivery companies. Here’s why.

Over the prior decade auto insurers serving commercial transportation companies saw their loss ratio regularly exceed 100%, climbing as high as 108%. That ratio dipped slightly in the pandemic year of 2020 to only 102%. An S&P Global Market Intelligence report referred to the dip as making the sector less unprofitable.

Dig in past the top line number of claims, however, and you find an ugly truth - while claim frequency is down, severity is up. With returns to offices and events on the upswing, we could also be seeing a rise in claims numbers, too, in the near future.

Challenges Brought by the Pandemic

Due to its loss ratio history, commercial transportation insurance was already in a hard market. COVID-19 compounded this trend in a few different ways, including:.

• Surging E-Commerce/Delivery: The pandemic massively accelerated e-commerce growth. Forbes reported it would have normally taken 4-6 years for e-commerce to grow at the rate it has been since COVID-19 began.

• Labor Shortage: The delivery industry has not been immune to The Great Resignation. Staffing and retention is at an all-time low.

• Companies Cutting Corners: A tight labor supply can add more pressure on drivers to meet increased demands, often resulting in corner cutting and dangerous working conditions.

Considering these issues, a slight decline in in loss ratio will be an insignificant blip as traffic levels return to normal. Meeting demand while avoiding incidents and claims could be difficult for the commercial transportation industry, even for companies operating with the best of efforts in their employment practices and safety precautions. Therefore, as e-commerce orders continue to increase, insurance premiums associated with operating a commercial transportation business are likely to increase, as well.

Battening Down the Hatches

Given the aforementioned factors, it’s more important than ever to look closely at your operation and find ways to mitigate risk that can help reduce your claims and loss experiences. Here are a few ideas:

• Retain Good Drivers: Hiring and retaining good drivers will help given the labor shortage. It is hard to find new drivers, so keeping the good ones is significantly important. Acknowledging good performance and adding benefits motivate drivers to stick around.

• Get Serious About Safety: Don’t shortcut on background checks. Also, implement regular mandatory safety meetings and create a culture of accountability that does not put demand ahead of safety.

• Incorporate Technology: Technology, like employee monitoring systems, coming into the space offers real benefits. It can not only mitigate risk, but help inform during any claims or litigation process. Drivers working safely have nothing to worry.

As roads begin to fill up, preventing loss and minimizing damage increases in importance. At the point of loss, claimants’ attorneys will go back through driver files. During discovery, if they find out a business is hiring drivers with infractions, working around FMCSA scores, or see violations of service hours, all will be used against the company.

The less unprofitable phase is likely momentary, so use the moment to improve where possible and reinforce what is working for an uncertain future.

Want to learn more?

Find me on LinkedIn, here.

Connect with the Risk Strategies Transportation team at transportation@risk‐strategies.com.

Email me directly at bpaulozzi@risk‐strategies.com.