Misclassification of radius can cause a great deal of harm to a commercial auto insurer's bottom line. As we reported recently, a Verisk study analyzing commercial auto portfolios shows that insurers are facing $6.4 billion in premium leakage over a four-year period due to this problem.
But while underwriting losses are growing 16.2 percent annually, some insurers are thriving—and making handsome profits. According to A.M. Best, these profitable insurers are tracking an average of 14 points better in their combined ratio than the rest of the market.
What are profitable insurers doing differently?
Commercial auto insurers who are bucking the trend are taking proactive control of risk classification—and that can make all the difference between a profitable and an unprofitable commercial auto policy.
How can commercial auto be made profitable? Start by going after the worst offenders.
Verisk’s research into radius misclassification showed that 23 percent of locally rated vehicles were discovered outside their radius at least once. Of these vehicles, we’ve labeled a 16 percent subset as worst offenders because they account for the lion’s share of losses due to misclassification—$4.4 billion. Correcting those misclassifications presents a quick, simple strategy that can significantly improve your bottom line.
The first step in identifying worst offenders should be a book cleanup of your commercial auto policies. You need to identify the policies in your portfolio that are incorrectly flaunting the local-radius definition, so you can address them and realign premiums appropriately.
Learn more about weeding out misclassifications
Read our special report, Recapturing $6.4 billion in commercial auto premium leakage, to learn more about best practices and the benefits of conducting a book cleanup to weed out misclassification.