It’s a challenging time for the commercial auto insurance sector. Mixed financial results are perplexing to carriers. For example, combined loss ratio has risen approximately 20% over the past ten years, and all the signs indicate that trend will continue. Yet at the same time, there’s been some very good, strong growth in direct net-written premium. In fact, over the past five years, commercial auto has experienced uninterrupted growth—hitting $31 billion in 2015 alone. So why the losses?
There are a number of contributing factors. First of all, more people are on the road driving more miles. That alone increases loss frequency. Add to that an increasing total cost of claims due to medical inflation, litigation expenses, and rising repair costs. These largely uncontrollable factors create a snowball effect that erodes profitability and leaves carriers struggling to put the brakes on losses. The good news is, there is one element in all of this that carriers can control—how well you know your drivers.
Getting to know your drivers to drive greater profitability
By gathering and analyzing the right driver-related data and factoring in how past behavior correlates with future losses, you can decrease overall loss propensity and improve profitability. What I’m talking about here goes well beyond the common motor vehicle records (MVR) data carriers have traditionally used to assess risk. Today’s data analytics leverage from a variety of data inputs to give you the deep insights you need to make the right business decisions.
For example, you can now perform a commercial loss history search on individual drivers to yield insights not otherwise available. Predictive modeling can help you rank order your commercial drivers based on loss propensity. And telematics can provide you with unprecedented feedback about individual driver behavior to help you fine-tune your underwriting decisions.
Three tools for getting to know your drivers
LexisNexis Risk Solutions has long offered C.L.U.E.® Commercial as a non-FCRA contributory database solution that delivers loss runs to all standard commercial carrier lines of business. Traditionally, loss runs are searched based on the business. Our newest enhancement to C.L.U.E. Commercial allows carriers to perform loss runs on individual drivers—regardless of the companies they’ve worked for. To illustrate how impactful this information can be, I’ll share some results from a recent internal study. We took the same book of business and ran it through C.L.U.E. Commercial, then through Driver Search. The first run results showed 4,000 claims totaling $38 million in prior losses. In our second run, using Driver Search, the results revealed an additional 718 claims totaling another $8 million in prior losses. This amounts to a 21% lift. The results speak for themselves.
LexisNexis also offers a commercial driver-specific predictive model for predicting loss propensity—AttractSM for Commercial Auto Underwriting, our driver score. The tool creates a score for each individual driver based on a variety of public record data including bankruptcy, judgments, liens and other on-credit based attributes. Low scores indicate a high propensity for loss. High scores indicate low propensity for loss. With Attract, you can rank order your commercial drivers and then use that data in rate order calculations, as an attribute in your tier or as a component in discretionary pricing. Our internal test results show a very strong correlation between individual scores and loss ratio propensity.
Telematics is getting a lot of attention in the insurance space. Whether built-in at the factory, added through an after-market installation or popped into a cigarette lighter, there are lots of options available for integrating telematics features into vehicles, and into the commercial insurance framework. The problem is, getting the benefit from telematics requires a lot more than a device. Carriers need good solutions for gathering, analyzing and then applying the insights telematics can reveal into a risk assessment model. LexisNexis is invested in providing carriers with telematics solutions that allow you to take very specific individual driver behavior data and (especially when combined with the other two solutions I’ve mentioned here) achieve a comprehensive view of individual driver attributes and risk.
In my next post, I’m going to paint some scenarios for you that will help you better understand how these solutions together can give you the individual driver-based insights you need to improve business results.