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Competing for Commercial Auto Business in a Hard Market

Table of Contents

Capturing Final Build

Commercial auto carriers look beyond differentiating to compete including vehicle location data to detect fraud at quote. 

Once again the commercial auto lines industry is experiencing rising losses. Once again the solution to bad results is to raise everyone’s rates to make up for the losses. Once again good risks are punished and bad risks are subsidized.

Earnings reports are bearing out Fitch Ratings predictions for 2016, “Commercial automobile liability insurance continues as a weak performer, generating a large 2015 underwriting loss and adverse loss reserve development due to claims severity issues. While commercial auto business continues to have meaningful premium rate increases, Fitch expects the segment to generate another underwriting loss in 2016.”

If you want to grow your commercial lines book, how will your differentiate?

Product? Please help me here. What is new in product? Underwriting has always been “flexible,” there’s nothing new here. And when there is something new, it can be copied.

Claim Service? Claim service is great, but let’s face it unless a customer has been through the claims process, or the agent has been through the process, or a carrier heavily markets that service, no one cares.

Ease of doing business? This is an easy one. Just write everything. Just like claims is easy when you pay all claims. Seriously though, ease of doing business is speed on turnaround and giving a competitive price in a delivery process that makes it easy for the agent or the agent’s staff. At least one personal auto carrier that I know of captured a large share of the agent driven personal auto market, not because their commission plans were better, but because it was the easiest process. But consider that while it can be done, it takes a big investment and you don’t have time if you want to grow now. Plus, the focus on ease of doing business still does not solve the risk assessment issue.

Compensation to agents? This is a good alternative to ease of use. It is quicker to implement and will certainly attract business. However, unless you have a way to assess risk and price properly, you will just attract what you already have, or you may even attract worse: a book that will survive only with an-across-the board price increase.

Relationships? I would suggest relationships are born of a good business experience. That means you have to have at least one or two of the other factors going well to have a relationship in the first place.

Price? At the end of the day, price moves business. It trumps the rest, that is, assuming none of the other areas are horrific and, you have at least one of the other factors working well. The challenge is to be able to price well so that you attract good risks, and, know the bad risks before you book them. Once on they are on the books, it’s too late!

Rate increases may keep the market profitable as a whole for now, but raising prices drives fraud! Why is there so much fraud in insurance? Are these all bad guys, or do carriers drive them to it because the rates are so high that they feel they must cheat just to be able to keep their heads above water?

Negative financial impact in whatever form it takes is known to drive fraud.

If you compete on price, how will you assess risk? Do a better job of validating your existing rating factors? I mean that is the point of rating factors. You do believe they help assess risk. You just are surprised when the claim data and underwriting data don’t match. You could do a better job just validating the data on the front end.

We already know where liars congregate. They congregate at territory, radius, and final build (to name a few). Agents and policyholders know this is the soft underbelly of underwriting. Yesterday’s tools have failed. And telematics is not the holy grail it’s made out to be. Yes, it can detect driving behavior, but ultimately it is still an expensive technology requiring loads of storage and loads of dollars to implement. Not to mention the fact, that telematics is opt-in. Your customers have to agree to it.

Stopping Fraud at Quote: Territory, Radius and Final Build

To price correctly you have to stop fraud at quote. There is a way to do this and it involves a technology that leverages something that anyone who drives a car is automatically opted into – a license plate. Vehicle location intelligence leverages nationwide license plate sightings. DRN has the largest collection of vehicle sightings over 4 Billion scans nationwide with over 140 million more added monthly. Combining these vehicle location sightings with powerful analytics customized for the insurance underwriting and claims and provides alternative data insights that can tell you where the insured vehicles are and are not, or even what is on the back end of the truck. This data is packaged to detect fraud in territory, radius, and final build. The trinity of fraud.

Verify Territory

To verify Territory using DRN sets the given territory for a policyholder as a flag or prefill that can be used at quote, bind, renewal, claim, or for a book clean. As a flag, we take a given VIN and territory and compare the provided territory to where the vehicle spends most of its time (a discovered territory) and flags if there is a significant deviation in premium from the given territory versus a discovered territory. As prefill, we fill in the discovered territory at quote and asks the agent to correct if it is an error. In either case, the policy is flagged as a potential problem.

Verify Radius

Radius Response is a flag or prefill that can be used at quote, bind, renewal, claim, or for a book clean. As a flag, Radius Response takes a given VIN and radius class and identifies when a vehicle is materially outside the radius provided. As prefill, it fills in the radius class at quote and asks the agent to correct if it is an error. Using the product in conjunction with our territory check solution, first discovered territory will be prefilled and then discovered radius. In either case, the policy is flagged as a potential problem.

Verify Final Build

To verify final build we use a set of pictures of the policyholder’s vehicle that can be presented at quote so the agent can make the right choice of final build configuration, or reviewed later in a user interface that allows for individual and bulk look-ups with quick editing functions to identify issues with final build based on picture observation.

The amount of fraud today is very high because insurance is expensive. As rates rise, it is only going to get more expensive. Take this first step and grow your business profitably by stopping fraud.

Insights from carrier experience show a huge payoff.

commercial auto fraud
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