In recent years, the loss ratios (losses/premiums) for commercial auto insurance have been climbing. The ratios have climbed to a point across the insurance industry that it’s difficult for insurance companies to make any money at all. In fact, most have been losing money.
The reasons behind the increase in losses are many. One is commercial auto accidents have become a lucrative target for plaintiff attorneys. They see each accident resulting in an injury as a potentially very profitable legal case. Most businesses carry liability limits in the millions, while few normal people driving their personal car do. This disparity makes advertising to victims of commercial accidents worth the effort. Casting businesses as the “villain” in the accident is easy. They’re operating big heavy vehicles that can crush regular cars. Arguing they were operating in an unsafe way is also easier because it’s not a person they’re blaming, but a big profitable company.
Another reason for the increase in losses is the frequency of accidents that come with a healthy growing economy. When business is booming it means more trucks on crowded roads. In some industries, such as in the oil patch, where every vehicle seems to be big, and heavy, and in a hurry, the accidents can be lethal. And who has sympathy in court for a super-rich oil company?
One other reason, related to the one above, is the shortage of drivers in the marketplace. Commercial truck drivers are in high demand everywhere. Using the oil and gas industry again as an example, companies are paying drivers close to $30 an hour. They need warm bodies with a commercial driver’s license, and they need them yesterday. As the demand for drivers goes up, so does the frequency of not-so-good drivers climbing into the cab of the truck.
In short, the insurance companies that are insuring commercial auto liability are getting crushed by the losses that they’re paying, and premiums have to rise for them to continue.
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