Commercial Auto Rates Too High?
I am sure that many of you saw the recent article in the Boston Globe about the Attorney General’s review of the commercial auto results over the past several years. The AG’s office determined that the industry as a whole has been overcharging customers to the tune of $150 million per year for the last 7 years! Could this be true?
At Plymouth Rock our pricing – the price we actually charge for each risk – has steadily decreased over the past 7 years. In the commercial insurance world there often is a significant difference between the list price (the price before any discounts) and the price that actually sells the policy. Unless you know the details of those discounts, it is hard to look at industry wide premium numbers and know what has been happening with the real price.
The “real” price – the price business owners actually pay – at Plymouth Rock has decreased from $1,333 per vehicle in 2004 to $1,103 today; a decrease of 16%. This decrease is the result of a combination of factors:
- discounts added to policies,
- the fact that our commercial auto rates have actually decreased.
In fact, we recently introduced a new safe driver discount available when the driving record has been clean for 4 and/or 5 years. We expect this to bring our rates down even further.
The insurance industry is like any other industry, when costs (claims) go down, firms drive new sales by lowering their prices (read rate). This is exactly what has been happening in the commercial auto market. In addition, the tough economy has forced businesses to look very closely at the price they are paying for their business auto coverage. The industry has been responding increased competition, lower claim volume and increased customer scrutiny by offering more competitive pricing. It’s not clear who the AG believes was “over” charging, but Plymouth Rock remains committed to offering competitive insurance products and superior customer service to our customers.
I am confident we have done this over the past seven years!
Should the Experience Period be Longer When Evaluating Risk?
As long as I have worked in Commercial Lines, the “experience period” for evaluating a risk or for consideration of experience rating has been 3 years. This has been true no matter the line of business (GL, Work Comp, and Auto). This was one of the commonly accepted pearls of wisdom when I was introduced to Underwriting. When I first began working in Massachusetts I was surprised to see the Merit Rating Bureau’s approach of using the fourth and fifth years in assessing points. I had always assumed that by the third year of being incident free what ever the propensity for loss had returned to base line. When it comes to commercial auto, it turns out that that assumption was probably not correct.
Does having an incident in your driving record three years ago influence your behavior in the fourth or fifth year? For what ever reason, the presence of that incident has some significance-even if the incident is not your fault. Drivers who are clean for the fourth and fifth year have lower loss costs.
To recognize those lower costs on 5/17/2011 Plymouth Rock Assurance Commercial Auto is introducing a “clean driver” discount for all of our commercial auto programs - applicable when the driving record is incident free for 4 and/or 5 years. Our Agentweb will automatically determine the correct discount based upon the driving record. The discount applies to individual drivers so one driver won’t make the entire risk ineligible. The total discount is up to 15% depending on the drivers on the policy.
The driving record is just a proxy for the driving behavior. I don’t know why the 4th or 5th year incident free matters. (I could guess: Do you obey the speed limit? How do you accelerate the car? Do you often have to brake hard? The technology exists to tell us these things and more but until it is widely accepted we use variables that are proxies.) But the data is clear that the effect should be recognized, we are pleased to be able to introduce this discount.