Taking the Digital Route to Lower Commercial Auto Losses

Originally published in Carrier Management 10/2/2019

It’s an unfortunate truth that commercial automobile insurance hasn’t been a profitable line of business for years.

According to industry reports, even though commercial auto rates increased for 31 consecutive quarters (through first-quarter 2019), with premiums rising by nearly 9 percent in the first quarter of 2019, the sector posted a net loss ratio of 83.5 percent in 2018, with net premiums totaling $25.5 billion and net losses totaling $21.3 billion. Credit research firm Fitch Ratings estimates that the sector’s net loss ratio would need to fall below 70 percent to break even.

The Council of Insurance Agents & Brokers, meanwhile, cites a multitude of contributing factors including (but not limited to):

  • Rising vehicle values
  • Increased litigation costs
  • More distracted drivers
  • Deteriorating road quality

While there’s a plethora of external factors that have led to this state of affairs, human error seems to be a constant. According to the National Highway Traffic Safety Administration (NHTSA), human error accounts for 94 percent of all vehicle crashes. (Source: “The National Motor Vehicle Crash Causation Survey” conducted 2005-2007, NHTSA Safety Facts, February 2015)

In an age when we drive computers on wheels—adaptive cruise control, multi-camera safety systems, etc.—it’s interesting that we primarily leverage technology for our comfort and not for improving safety as much as we could. However, municipalities and fleet management companies alike have begun rolling out new technologies to help mitigate human error.

Here’s how taking the digital route can be a shortcut for insurers to stem losses.

Taking the Digital Route

Historically, red-light cameras have been one of the easiest options to consider, since they’ve been adopted by nearly 500 cities nationwide. According to the NHTSA, they are considered a leading tool in the arsenals of municipalities seeking to reduce distracted driving, which claimed 3,166 lives in 2017 alone.

Given the technology’s ability to reduce those numbers, you’d expect the number of red-light cameras across the country to be rising exponentially year by year, right?

According to a 2017 study from the Journal of Safety Research, the number of fatal red-light crashes is 21 percent lower in cities where red-light cameras are turned on whereas the red-light running fatality rate in cities that shut off their cameras is 30 percent higher.

Fortunately, the Insurance Institute for Highway Safety is doing something about it by partnering with AAA, Advocates for Highway and Auto Safety, and the National Safety Council on a campaign encouraging municipalities to use the technology. Insurers would be well advised to research whether the municipalities in which they operate have such programs in place, and if they don’t, sharing campaign materials with them or offering to lead a workshop.

In-vehicle camera systems, which record driver and road-facing video either by default or in response to a specific action, are another option that can benefit fleet owners, drivers and insurers alike. For insurers, the system’s footage can serve as legal evidence that limits jury payouts, a leading contributor to rising premiums. For drivers accused of reckless behavior, it can prove appropriate precautions were taken. And for fleet owners and managers, the footage can be used to identify safe and unsafe driving behaviors and be incorporated into training programs.

Telematics: One Tool to Rule Them All

Then there is telematics, already a well-established option in the consumer automotive insurance industry, where Progressive Insurance has offered customers the option to install devices into their vehicles in exchange for potentially lower rates since 1998. Though consumers see the devices as a double-edged sword, leading to adoption rates that have yet to exceed 20 percent, according to McKinsey Research (April 2018), the commercial fleet industry is a different story: a 2016 report by Heavy Duty Trucking magazine publisher Bobit Business Media found telematics adoption rates as high as 78 percent in the utility fleet industry (December 2016).

It’s not hard to see why. As with in-vehicle cameras, fleet operators can use the data collected by telematics to identify key driving behaviors that reduce or increase the possibility of future collisions and adjust their training accordingly, while drivers themselves may find the devices less intrusive. Insurers, meanwhile, can use telematics to calculate the risk associated with each driver, rewarding fleets for good driving behavior and ensuring they have appropriate coverage in any situation.

Just as lenders use credit scoring software to evaluate potential clients, telematics software is capable of analyzing behaviors such as acceleration, braking, cornering, speeding and smartphone use in order to calculate a score indicating whether a driver faces a higher or lower risk of collision than the average. For example, trips with three or more hard braking events are over 2.5 times more likely to result in a collision than trips with no hard braking events.

FICO’s telematics-based research for the FICO Safe Driving Score has demonstrated that drivers identified as higher risk in this way are indeed more likely to be involved in a collision and incur a loss than those deemed lower risk. In one study, leveraging the 2nd Strategic Highway Research Program dataset (SHRP2/Dataset 10.15787/VTT1/IEKRD3), the 20 percent of drivers deemed highest risk were found to be up to 30 percent more likely to be involved in a future collision than the 20 percent of drivers deemed lowest risk.

(Editor’s Note: The 2nd Strategic Highway Research Program data collected by the Virginia Tech Transportation Institute was obtained by equipping volunteer participants’ vehicles with unobtrusive cameras and instrumentation to record real-world driver behavior and performance. In its study using the VTTI data, FICO retrospectively assigned its FICO Safe Driving Scores to drivers based on VTTI’s records of driver behaviors like acceleration, braking, cornering and speeding, and then used collision information to test the predictive value of the FICO scores. The VTTI data spans three years, 3,000 drivers and over 30 million miles driven. “FICO Safe Driving Score Predicts Likelihood of Future Collisions,” April 7, 2019 blog item at

No wonder, then, that thousands of drivers, fleet owners and insurers around the world have already adopted a telematics-based scoring model. Incorporating this technology into their operations, combined with proper education and reinforcement of safe driving behaviors, gives them a significant opportunity to improve driving outcomes across the board.

After all, any solution that increases transportation safety is a win not only for the commercial automobile insurance industry’s bottom line but the drivers and fleet managers employed by their clients as well.