NU Online News Service, Sept. 8, 3:38 p.m. EDT
Underwriting results for commercial auto have been favorable for the past seven years through 2009, a significant shift for the line of business relative to the prior 30 years, according to a new Conning Research & Consulting report.
Conning said underwriting results in the past seven years have been profitable for commercial auto, and combined ratios have come in under 100 during that time. By contrast, commercial auto saw underwriting profits in just four of the prior 30 years (1972 to 2002) and had a mean average combined ratio of 107.8 in that time.
Additionally, Conning said commercial auto pricing cycles appear to be a barometer for other lines of business, turning ahead of the rest of the market. “Limited exposures to large loss swings caused by natural catastrophes and also the relatively rapid development of loss claims are explanations for why commercial auto results show changes in conditions ahead of many other lines of business,” Conning said.
The amount of commercial auto business placed in residual markets has declined sharply since 2002, Conning noted. “About $5.8 billion, or 18 percent of the augmented commercial auto insurance premium potential, is estimated to be in alternative market mechanisms,” Conning said. “Its relative size decreased from about 40 percent estimated in 2002.”
Conning said the decrease suggests the insurance industry is providing adequate capacity, product features, and pricing that customers are able and willing to buy. Additionally, Conning said that “commercial auto customers generally have not sought to expand or even retain their own risk assumption and management for commercial auto exposures when insurance options are competitive.”
With respect to the companies writing commercial auto business, Conning said the marketplace is dominated by multiline insurance groups rather than by commercial auto specialists. Commercial auto specialists account for just 17 percent of direct premiums written, Conning said. That number drops to 5 percent when accounting for specialists that are part of larger insurance groups that write other lines.
“In other words, 95 percent of commercial auto premiums are in insurance groups with more of their premium in underwriting risks that are not commercial auto,” Conning said.
The livery and construction segments of commercial auto are the exceptions, with livery specialists writing 31 percent of livery premiums and trucking specialists writing over 50 percent of the for-hire trucking segment.
For trucking, though, Conning said the specialist market share is expected to decrease. “Several insurers have indicated market expansions, including trucking,” Conning said. “The industry could experience another period of rapidly growing loss ratios in the trucking exposure markets as it did in 1998 and 1999 when new insurers entered the market.”