Friedman Group

What's causing increases in commercial auto rates?

April 24, 2019

Over the past few years, more accidents have been attributed to smartphone use while driving. This, along with the higher cost of repairs, has led to double-digit increases in commercial auto insurance rates.

Distracted driving has led to sustained commercial auto premium increases for businesses of all sizes – from those with a few vehicles and drivers to those with large fleets. However, there are now several new factors that will play a part in ensuring rates continue to climb, at least in the near term.

Continuing factors

Distracted driving - This is the biggie. Before smartphones were introduced in 2009, there was a steady decline in vehicle accidents. As more people started using smartphones, claims costs started to reverse because vehicular deaths started increasing for the first time in decades. The culprit, say many transportation safety experts, is distracted driving.

Repair costs – As the technology used in our vehicles has advanced, the cost of repairing vehicles has skyrocketed. A 2018 research paper by AAA found that vehicles equipped with advanced driver-assistance systems (ADAS) can cost twice as much to repair following a collision, due to expensive sensors and calibration requirements.

Citing the cost of repairing windshield damage in a car with ADAS, AAA found some cars had cameras installed behind the windshield, which needed to be recalibrated after the windshield is replaced. This has increased the cost replacing such windshields to about $1,500, compared to $500 for a standard windshield.

Medical costs- Medical costs have also been rising steadily. Those increases carry over into the costs auto insurance companies incur when drivers and passengers are injured in an accident.

More miles driven - According to AAA, Americans are spending more time on the road. Driving more miles increases motorists' likelihood of having an accident. 

New and future risks

Weather-related property claims - A recent report in the insurance publication National Underwriter noted that commercial auto insurers say that the increasing frequency of large hurricanes, floods, hailstorms, and wildfires are leading to higher auto physical damage claims. The number of property claims has been steadily increasing in the past decade as both the frequency and severity of major weather events grow.

Lack of experienced drivers - As the economy expands, it becomes increasingly difficult to find experienced drivers. Making things more challenging is that  many experienced commercial drivers are retiring, and there are not enough job candidates with the skills and expertise needed to drive commercial vehicles.

The American Trucking Association estimates that the industry is understaffed by more than 50,000 drivers, and if current trends continue, this could increase more than threefold within eight years. 

Security with onboard systems - New vehicles are equipped with numerous technologies that rely on an array of devices, including radar, light detection and ranging, cameras, graphics-processing units, and central processing units. These advances could lead to new risks due to system failures that may result in accidents.

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