Claims are impacting the US casualty market

Article by Kristian Orispää

Among the most frequently discussed drivers are social inflation, increased use of litigation funding, active shooter incidents, advanced science and technology involved in litigation driving up costs, traumatic brain injury and the ongoing opioid epidemic to name a few.

The negative claims development in combination with cumulative rate decreases for several years has led to hardening of US casualty market; higher premiums and scarcer capacity. One area which is under particular scrutiny is that of excess auto liability coverage, which combines many of the factors impacting the general casualty market in the US with some additional problems specific for this cover.

Liability claims are changing the market

A typical commercial auto liability insurance has a limit of at least USD 1M and provides coverage for company owned vehicles and when employees drive a personal or rented vehicle for business (hired and non-owned vehicles extension).

When talking about excess auto liability, we refer to the coverage provided above the primary auto liability policy, that attaches above the primary policy limit.

In the United States, compulsory auto liability insurances provide cover for both bodily injury and property damage. However, compulsory limits vary from state to state, with New Hampshire state motto of “Live free or die” is echoed in the fact that they do not set any minimum or compulsory level of insurance needed.

Liability still sits with the driver of the vehicle, but the level of insurance cover is completely left to the individual citizen or company to decide. Other states have compulsory limits between about USD 15,000-100,000 for auto liability (some examples: Maine: $50/100K per person/accident, including $25K property damage, Arizona: $15/30K per person/accident, $10K property damage).

From Nordic perspective

Looking at this from a Nordic perspective, this is a very different approach. The Nordic countries are in general setting mandatory auto liability limits with the safety of the people injured as the main concern. Limits in Norway and Finland in fact being without an upper limit.

“There is no safe point of attachment anymore,” as an unnamed underwriter stated when talking about excess auto, in Insurance Insider (14 January 2020). This quote summarizes the view amongst many of the local excess and umbrella underwriters writing excess auto in the US.

While attachment points have traditionally been USD 1M, this has started to change due to increased spill over from the primary auto policy into the excess layers.

The excess layers being there for emergencies, these emergencies have been happening more and more often, resulting in premium increases, withdrawal of capacity, stricter guidelines, increased focus on fleet safety programs and higher minimum attachment points.

How is my driving?

Many of the factors driving the overall rate increases for casualty insurances in the US are applicable for excess auto. In addition to these general factors, there are specific issues impacting auto claims. For example, people have been driving more over the past years. The lock downs associated with the spread of COVID-19 has however led to a drop in the frequency of claims due to less vehicles being on the roads.

As less traffic allows for higher speeds, the severe claims have if anything seen a further increase as less traffic allows for higher speeds (with shelter-in-place laws in effect earlier this year, a new record for driving New York to Los Angeles was reportedly set with an average speed of 170km/h).

Driver distraction and impairment is another growing concern, both in terms of mobile use and driving under the influence of alcohol or other drugs.

Specifically, the number of DUI cases involving narcotics is rising following the ongoing opioid crises in the United States. A 2016 study found that 11% of fatally injured drivers and 20% of all DUI drivers had some sort of prescription opioid in their body.

Claims continue to rise

Perhaps, no one spends more time on the roads, and drives more miles, in the United States than a truck driver. Unfortunately, low unemployment is forcing transportation companies to hire less qualified drivers, who in turn are transporting goods over an aging infrastructure, which is also in need of a massive overhaul with an infrastructure investment deficit estimated to reach USD 3,36 trillion by 2040.

Since 2010, trucks have been involved in 59 percent more accidents per mile, according to data from the American Trucking Association. Moreover, deaths in trucking accidents have risen a third since 2009. Reasons include truck driver shortage, distracted or impaired drivers and aging infrastructure.

Anders Lindström, Senior Underwriter at If Insurance explains that, “against this backdrop, rates are steadily increasing as claims continue to rise in both frequency and severity. In fact, rate increases on primary auto liability have been a reality for 35 quarters in a row with increased spill over to excess/umbrella.”

Further to this, states are adopting other changes that build upon the current negative development; increases in speed limits. “An increase in the speed limit by 5 MPH provides has statistically caused an 8% increase in interstate fatalities.

Thankfully, according to the National Highway Traffic Safety Administration and CTIA, data usage nearly doubled from 2017 to 2018 with fatalities actually decreasing by 2,5%, which means the correlation between mobile data usage and vehicle fatalities has been broken.”

Driver distractions in many cases

The huge jury awards we are currently seeing are wiping out the insured’s primary coverage, triggering the protection offered by the umbrella or excess policy. These cases with overspill to excess auto coverage is happening both more often and with greater severity than before.

As an example, some examples of so-called nuclear verdicts in the US are listed below to illustrate the liability consequences with Auto Excess Insurance:

Many of these cases involved driver distractions, from texting to narcotics use.

•  A Texas case where a drunk driver of a dealer’s car killed a scooter rider led to a negligent entrustment casa against the car dealer. Jury deliberated for 25 minutes before awarding several hundred dollars to the claimants.
• Another Texas case with awards of several hundred million dollars was when an oilfield water treatment truck killed a passenger in another vehicle. The claim was based on negligent maintenance of the truck.
• In California, a tractor trailer standing still on the highway shoulder was rear ended by another vehicle leading to multiple fatalities. The driver of the other vehicle fell asleep and drifted off to the side of the road, hitting the truck which did not have emergency flashers on, leading to an award in excess of USD 100M.

Summary

In summary, US casualty claims are increasing rapidly with personal injury claims being the major driver. As part of this, excess auto is impacted by several of the general drivers but also additional specific challenges such as truck driver shortage, driver impairment and infrastructure investment deficit. For clients without US operations, employees travelling to the US and renting vehicles is a risk not to underestimate.