In the past five years, a clear and consistent pattern incommercial auto insurance — reported combinedratios exceeding 100 — has been having long-term, negative impactson profitability for insurers and shareholders alike.

In truth, commercial vehicle and fleet insurance coverage hasbeen exceptionally challenging for many insurers to manage over thepast two decades.

Related: 7 ways auto technology is impacting insurancecoverage

Commercial auto insurers are now at a crossroads, and have manyquestions related to their respective portfolio management. Manyare experiencing market challenges including those in portfolioprofitability, customer retention, regulatory complexity, and saleschannels. Should they pull back on commercial auto underwriting,which often can be a gateway to more profitable coverages such asproperty and liability? Do they wait out thisperiod of "soft rates" and low investment returns, holding on tomarket share and instead taking opportunistic, incremental growth?Or is this a space that may be ripe for innovation?

Since 1995, the industry has recorded profitable combined ratios(values below 100) only eight times, according to the Insurance InformationInstitute, and half occurred during the most recentrecession when commercial auto miles driven and demand for coverageplummeted. Aggregate net written premiums have recovered andsurpassed prerecession totals. Even so, rates have remained low.Only recently have commercial auto insurers seen modest rateincreases in the 1.5-to-2.5 percent range.

The optimal solution may already exist in the form of connected vehicles and fleets. While telematicsmay be relatively new to personal auto, commercial vehicles havebeen using the technology for more than 20 years typically to tracksensitive cargo and provide logistics planning. One strategicadvisory firm, estimates that there are more than 8.9 millionconnected commercial vehicles in the United States and that nearly90 percent of all vehicles will be "connected" by 2020, accordingto research conducted by Ptolemus Consulting Group.

Related: 8 ways telematics will shape insurance agencies in2017

Mature models

Telematics service providers (TSPs) have maturebusiness models to install and maintain various devices insidevehicles. These devices typically transmit driving behavior databack to their systems, where it's analyzed to provide fleetmanagers with guidance on improving fuel efficiency, diagnostic andprescriptive maintenance, and, perhaps most important, driversafety feedback and coaching. These facets can affect the totalcost of ownership (TCO). Repurposing the same driving data forinsurance underwriting purposes can be a natural extension and yetanother way to lower TCO for businessowners and fleet managers.

Related: Telematics: Carriers expanding tools beyondusage-based insurance

There are potential benefits to all parties involved in telematics-based underwriting. It's no secretthat commercial auto insurance can benefit from more enhanced risksegmentation for rating purposes. Vehicle operational data providesmuch more accurate risk profiles for proper pricing, which canpositively impact rates for better-performing fleets. Because thedriving data is portable, insurance companies can review drivingbehavior efficiently before the policy is bound, ratherthan binding coverage and reviewing performance after the fact. Byactively monitoring their insureds' driving practices, insurers canengage positively with customers and promote safe driving throughgamification, incentives, and other customer-focused benefits.

Businessowners and fleet managers can then obtain rates thatmore accurately reflect their employees' driving practices —further promoting safe behaviors, gamification of driving, anddriver coaching, with analytics and tools to support thoseinitiatives. Businesses that are already invested in safe drivingcan realize premium benefits at the inception of their policies,rather than a year later at renewal. Indirectly, safe drivinghabits have a net positive effect on fuel consumption and vehiclewear and tear, which lowers TCO and has implications forprofitability.

Related: Telematics in auto claims isinevitable

Driving data: A new revenue stream

TSPs that manage the hardware and software that collects andtransmits the data can add insurance savings to their list ofvalue-added services, along with traditional products. With driverconsent, TSPs can also potentially develop a new and organicrevenue stream by harnessing driving data and transmitting it toinsurance companies that wish to use telematics data forunderwriting and rating. To achieve telematics insurance "harmony,"both the insurance companies and TSPs would need to overcomecontrasts in their business models. Today, there are dozens of TSPvendors and mobile-solution providers capable of capturing variousforms of vehicle data, and there are hundreds of commercial autoinsurers that may want such data. That's what's known as themany-to-many business challenge.

Related: 9 factors impacting claims in 2017

The ideal solution to achieve such "harmony" is a single pointof access to aggregate and normalize fleet driving data to providescalable solutions that can benefit all parties. Data must also beaccessible in a timely and consistent format that allows insurersto integrate data from varied types of commercial vehicles andbusiness uses. Insurance companies also need either a proprietaryscoring model or a third-party model to evaluate the data.

A compatible response to this many-to-many business challengewould be a data platform capable of ingesting, analyzing, anddistributing new and unique data points from connected vehicles,property, and even people, with speed and agility. This will keepinsurers well equipped with innovative tools to help supportunderwriting decisions being made in a continually changingmarketplace.

Zack Schmiesing is director of Thought Leadership,Commercial Lines Underwriting, for Verisk Insurance Solutions,a Verisk Analytics business. The opinionsexpressed here are his own.

This author can be reached by sending emailto [email protected].

See also:

How telematics can help reduce auto accidents

Insurance 2017: Priorities for innovation,automation and transformation