Driving Risk: The Rising Costs of Auto Insurance in Construction

Danette Beck (00:00):
Welcome to the inaugural Astrus Advantage podcast. I'm Danette Beck, and I'm here on behalf of Astrus Insurance Solutions, where we've spent the last 10 years focused solely on the construction industry. At Astrus, we bring together underwriting, claims, risk engineering and data to help contractors stay protected and keep projects moving. We're launching this podcast to shine a light on the real issues facing contractors, brokers and risk professionals today from rising insurance costs and workforce challenges to evolving job site exposures and litigation trends. There's no shortage of complexity in construction, and we believe the more visibility we can provide, the better decisions the industry can make. Our goal is to share insights, elevate conversations and help our partners navigate risk with clarity and confidence. Before we dive in, I'm thrilled to be joined by three of our senior leaders here at Astrus, folks who not only know this industry inside and out, but who also help shape how we support our partners every single day. First up, we've got Dave Conway who leads our west and central teams. Next, we've got Bob Albertini who leads our east team, our project OCIP/CCIP team and our claims team. And rounding us out is Geoffrey Hall, our Chief Operating Officer. Thank you to all three of you for being here with me today. They're smart, they're passionate about construction, and they're way more fun than you'd expect from an insurance podcast, so let's get into it. Okay, why don't we start with the big picture, and Geoffrey, I'm going to look to you. Why are we seeing such dramatic increases in commercial auto insurance rates for construction companies across the U.S.?

Geoffrey Hall (01:33):
Thank you, Danette. There's been a significant spike in the last five or six years. One of the things that's really started to add to the problems are the fact that we have a lot more distracted driving, phones, touch screens on automobiles and light trucks where it takes the driver's attention away, and there are a lot of things that are putting the driver in a place where they're no longer just focused on their driving. Another thing that we're seeing is that when we do have accidents and accidents do happen, we're seeing rising repair costs. That's coming a great deal from the fact that cars are significantly more sophisticated and complicated computer systems, a lot of external and internal sensory devices that when you have some type of accident, you need to get these things repaired. Also the fact of the matter is repair costs are rising because of the replacement of parts, but also the time to get those parts in place. Some of that is also added on from the displaced supply chain that we had during COVID. It still lingers a little bit and the sophistication of parts and the limitation of some of these parts. It's not the way it used to be where you could just go in, go to a repair shop, they're going to bang out some sheet metal and repaint and get things done. It's multiples of the time necessary in order to complete those repairs. We also have the fact that we have medical inflation, the cost on the liability side of the injuries and the soft tissue damage that occurs. The fact that people are more willing to make claims than they used to be. It used to be, oh hey, I had a fender bender. That seems okay, but when you're a construction company, your name on the side of the vehicle, people see that as a target, and then they start to pursue possibly unnecessary medical attention or heightened medical attention, which all adds to the cost. That involves bodily injury, so I'm not saying that these injuries don't occur, but the fact of the matter is we have more in depth evaluation of bodily injury. Soft tissue damage is always difficult to truly identify as opposed to this person has a broken limb, you can take care of that right away. Soft tissue damage and the disc, neck, back extremities can all cause heightened engagement with the medical community, which results in rising costs.

Danette Beck (04:10):
It really does sound like a one-two punch where you've got driver behavior, but that you also have the cost for repairs, but then you also have the increased number of litigation, which brings me to my next question and I'm going to turn to Bob, our head of claims. Bob, what role does social inflation play in the increasing cost of auto liability claims, and how is it showing up specifically in the construction sector?

Bob Albertini (04:34):
Yes, Danette. Thank you. Social inflation is real, and it does have an impact on the overall construction industry and the overall insurance industry. Social inflation refers to the increase in the cost of insurance claims due to societal and legal factors rather than just economic factors. As Geoffrey mentioned, may be rising repairs to repair vehicles. It's essentially a ripple effect where societal trends, such as increased litigation contribute to higher claims payout. Some of the factors in social inflation affecting auto insurance is higher claim severity. Social inflation leads to larger settlements and verdicts in the auto accidents, more litigation. There's a trend towards more lawsuits being filed after accidents, and these lawsuits are often pursued more aggressively, leading to higher legal costs and settlement demands. Here's an interesting take, according to a study by the Insurance Research Council titled "Public Opinions and Attorney Involvement in Insurance Claims," 16 million attorney advertisements ran last year. To put that in perspective, that's approximately 45,000 TV ads soliciting legal claims air across the U.S. each day. This breaks down to about 1,900 ads per hour, equivalent to one television ad every two seconds. That's pretty stark, and I'm sure if you turn on the TV at any time, you'll notice that also.

Danette Beck (06:03):
That's a startling statistic.

Bob Albertini (06:06):
Yes, it is just part of what leads and adds to the increased cost. To add to that, there's a few more variables, increased medical costs. The cost of medical care for accident-related injuries is also increasing. The big one is also shifting jury attitudes. Juries are more willing to award larger sums of damages potentially influenced by factors like negative perceptions of large corporations and social media impact on public opinion. One that's probably not discussed too often, but it is within the insurance industry, is third-party litigation funding. That's the availability of third-party funding for lawsuits where investors fund cases in exchange for a portion of the settlement. That can encourage more litigation and higher settlement demands. The impact is on the consumer and using the insurance buyer, which translates to higher premiums, potentially reduced coverage, increased deductibles. So that's a summary on social inflation.

Danette Beck (07:10):
Thanks, Bob. Geoffrey, you and I were having an interesting conversation around just walking around the city or driving from here down to Jersey or Philly about this and the number of signs. Do you have anything to follow up on that?

Geoffrey Hall (07:21):
Yes, sure. Thank you, Danette. I mean, to put into layman's perspective, when you are traveling, I travel on the subway every day, I would say close to 50% of the print advertising on the subways are different law firms saying, hey, have you been injured? Have you been in a car accident? If you have, you should talk to a lawyer. We'll be able to get you 10 times what you could get from the insurance company, a hundred times what you can get from the insurance company. You see that, you're literally being bombarded on a daily basis on public transportation. If you're driving along the highways, you'll see advertisements for, hey, you got hurt in New Jersey, or you got hurt in New York, call this person, call that person. We will make sure that you are made whole. To Bob's point, the litigation occurs, those litigators are taking the plaintiff's attorneys, they're taking a percentage of the settlement. Their objective is to settle as high as possible and actually possibly prolong it as long as possible in order to get more money out of the construction companies, the insurance company.

Danette Beck (08:35):
I'm going to take and run with that and go into this concept of nuclear verdicts. Bob, I'm going to come back to you on this one. This term nuclear verdicts has been around a lot, but it's even more prevalent today. Can you walk us through what exactly does it mean, and should our contractors really be concerned about it?

Bob Albertini (08:53):
Yes, Danette. Nuclear verdicts, it's also a real thing. It sounds horrible, and it is horrible. It’s categorized as exceptionally large jury awards over $10 million and significantly impacts the auto insurance industry. These verdicts lead to higher insurance premiums, reduce coverage and increased out-of-pocket costs for businesses and individuals. The rising frequency and severity of these verdicts are driven by factors like social inflation, as we discussed previously, increased public awareness of corporate responsibility and the complexity and cost to repair vehicles. The impact again is higher premiums. Insurance companies face increased claim payouts due to nuclear verdicts leading to higher loss ratios. To offset these increased costs, insurers raise premiums, both commercial and personal auto insurance policies, so it affects us both at home and at our business. It also leads to reduced coverage options. Insurers are becoming more cautious in underwriting, leading to tighter coverage limits and higher deductibles for certain policy holders based on their experience in the auto line.

Danette Beck (10:01):
Then it really isn't a trucking industry issue with them, Bob, right? It's anyone that has vehicles over the road.

Bob Albertini (10:07):
Absolutely. Anytime you put yourself in a vehicle and you're responsible while you're driving, it puts you in the position of being responsible for that loss and the ensuing damages that take place.

Danette Beck (10:21):
We've talked about nuclear verdicts, but I also want to talk about extreme weather events. Dave, I'm going to come to you on this question. What have these natural disasters and major catastrophic events have impacted on the auto industry as a whole?

Dave Conway (10:35):
Sure. I think climate change caused more frequent and more tense weather events, whether it be hurricanes, tornadoes, floods, hailstorms and such. Those events can cause an awful lot of damage. One of the problems, as we know, is repairing cars has increased dramatically. The cars are not necessarily repaired by repairing parts that exist already, but having to replace all the parts. Those storms can either total out a car or thousands and thousands of cars in any geography at one time. That issue is really putting a weight on the industry, and as we know, the purpose of insurance is to spread that risk out among all of the consumers. It doesn't matter what state you're in, whether you're in Florida or you're in Nebraska or California, when those events happen effectively, all the consumers are spreading out the risk and having to pay for the increased costs.

Danette Beck (11:34):
I want to circle this around to start having a conversation around this persistent labor shortage that we've had in the construction industry. Do you think that the lack of skilled labor is making this problem worse, and how do the less experienced or overworked drivers really affect the claims frequency and severity in the auto line of coverage?

Dave Conway (11:51):
Sure. I think the labor shortage is hitting in a somewhat of a different dynamic. Basically what's going on is the skilled labor that we had, we'll call it 10, 20 years ago, is aged out of the industry. We pushed very heavily for college degrees and so forth, further education as opposed to trade schools. There's been a depletion of the pool for contractors, so they've been pushing real hard to push that sector, further education. The unions have been working hard to draw in a larger pool of workers. On the downside, what has happened is we've got less experienced people coming into the business, and in addition to that, what is having to happen is the contractors are having to reach out further from where they might be performing the work, longer distances to draw the labor force in. The problem there is really that the workers are having to travel long distance to get to work early in the morning, late at night, and they're having to do that on top of working a full shift, whether that be eight, 10 or 12 hours depending on the type of work. Oftentimes the construction work is going on at night when offices aren't occupied or the roads are less busy. That's causing a real issue overall for the industry of trying to overcome that. There also is a bit of opportunity in that because contractors have been constantly evolving as far as risk management programs, fleet programs, safety programs over the years. One of the things that they're managing to do is when you pull in new labor, younger people into the business, well you have an opportunity to create a new culture. What was good once upon a time, you could have a truck and bring it home and park it in your driveway and take it out on weekends and do whatever you felt like doing with that vehicle. Well, the owners of these companies aren't as satisfied with that any longer. They're looking for somebody to show respect for the company and understanding of how accidents impact their profitability, their goals, their efficiencies. By establishing a more modern culture these days, I think that one of the fringe benefits is you don't have to accept what has been the practice for long term.

Danette Beck (14:11):
I love that. I love that you used the word culture and so I want to talk about that. From an insurance carrier or risk manager's perspective, and Geoffrey, I want to come back to you on this one. If I'm an insurance carrier or risk manager, Dave just set this up perfectly on talking about culture and changing, what we've done in the past doesn't mean we have to do it in the future. What are some of the biggest red flags that you have that would suggest that a contractor is high risk when it comes to auto liability?

Geoffrey Hall (14:35):
Thank you, Danette. One of the things you have to do as an underwriter is you try and understand the culture of entities and construction companies and how they import that culture to their team members. What we look for, ultimately what we want to see is that there is a culture that's driven by safety consciousness from the top of the leadership all the way through. If you don't see it, and there are different ways to look at that and how they implement structures, but if you don't see it, that's a red flag if the culture isn't from the top all the way through. The next area, and that goes towards this, is looking at how do they go about putting this culture into place. The ways you can do that are how are you training your team? What's the documentation that the training is taking place, and how often do you train? And are you staying current with what is happening in the marketplace? As we've talked about distracted driving before and other elements that come into play that maybe were not as prevalent previously. You also want to see if they're training their drivers, but also evaluating their drivers. So if companies aren't evaluating the performance of their drivers, meaning are they looking at motor vehicle records to see, hey, do our drivers have moving violations or potential DWIs or any of those things? Obviously you want to be able to say, look, so-and-so employee, we've looked at your record and we don't feel that you are representative of what we need to have driving our vehicles, or you could already be driving our vehicles and you have faltered in these areas. Then those companies have to have in place a method, a process for removing those drivers or closely monitoring those drivers.

Danette Beck (16:24):
So consequences for inappropriate behavior, right?

Geoffrey Hall (16:26):
Correct. Also my point to keeping current, there are many ways that fleet management can take place. You can have telemetrics where they're following the actual driving attitude of the vehicle, short stops, speeding, et cetera, distracted driving, video cameras, internal and external, showing what the environment is like in front of that vehicle if and when an accident occurs. Also what's happening with the driver that's driving that vehicle. We feel that if you start implementing these advancements, you'll start to have a more consistent fleet management and driver controls in place.

Danette Beck (17:06):
Great. Thanks, Geoffrey. Dave, anything to add to that that we didn't cover yet?

Dave Conway (17:11):
Yes, I would maybe add a little bit as far as the use of technology. Again, that's another cultural issue that the companies have to get over with their labor team. The age-old day of giving the truck over and the keys and letting the employees do what they wish need to be put into the past as far as policies go. Now we have the technology available, albeit it has to be added onto the vehicles in most instances, telematics. With that resource now available, if it's properly administered by the company, so it takes two, it takes the drivers to change, accept the technology inside the vehicles, and it also takes the company administering the systems and making sure that they get full use out of what the technology can provide. It's a little bit of a trust issue on both parts, but once you put it out there, the real impact or the benefit of the system in my opinion is the fact that it will help to improve safe driving practices. In turn, what that will do is reduce the number of claims. I think the real issue here is driving down frequency, not having the accident at all, therefore you incur none of the costs of repairing. You're not running the risk of a plaintiff showing up a couple of years later with a lawyer and these inflated medical bills and just catching you out of the blue. If you don't have the accident at all, that is really the goal and the way to drive down both liability and physical damage costs.

Danette Beck (18:46):
What I'm hearing from both you and Geoffrey is that this really is, and more I think and I feel, it's really about documented strategy and executing on those strategies. I want to talk about those documented strategies, and Bob, I'm going to finish off with you with some solutions. Let's flip over there to solutions. What are the most effective risk mitigation strategies? You had some really interesting statistics that you pulled regarding the types of claims that we're seeing in the auto liability line of business. What are the most effective risk mitigation strategies you're seeing that contractors can implement to help keep those claims down, as Dave just mentioned?

Bob Albertini (19:19):
Yes, so Danette, both Geoffrey and Dave, just laser-focused on risk mitigation strategies. A lot of great things just came out of that conversation. The key is, I think we all agree creating a safety culture is super important within an organization and providing the proper tools for the drivers to have best outcome during their day. The other thing is making sure that you provide them the proper equipment, making sure that the vehicles are properly maintained so that no issues that add to any potential losses. One of the things that I think we always try to strive for with our clients is report your claims as soon as possible. Delays lead to an increased cost and value. The unknown is always the thing that bothers most folks, and so you need to know what you're dealing with when a loss takes place. Make sure your driver documents as much as possible following an accident, recognizing that emotions typically escalate at an accident site. But there are benefits to documenting details for evaluation of a claim. I think we all know that your employees and colleagues are your most important asset. Don't be afraid to have discussions on performance and impact of careless and avoidable accidents. And so, a recent summary of national accident data, according to data from the National Highway Traffic Safety Administration Annual Report, shows that 66% of auto losses involve rear-end, sideswiped or angle type losses. That in essence means that if you're a responsible party, it's difficult to escape exposure. Driver training and accountability is important, and preventing those losses will reduce your exposure.

Danette Beck (21:04):
Thanks, Bob. I love the adage that it really is about the people, and we talk a lot about that, that our construction industry is made up of just that, the people. I want to finish off, we've got one last question asking each of you with one sentence on how Astrus is currently helping our clients resolve the issues that we just talked about today. I'm going to go to you, Bob, first.

Bob Albertini (21:25):
Okay, Danette. I'm not going to be able to do it in one sentence but maybe six.

Danette Beck (21:29):
That's fine. I'll give you two or three.

Bob Albertini (21:31):
Okay. I'm going to take six, I think.

Danette Beck (21:33):
Okay.

Bob Albertini (21:33):
At Astrus, underwriting, claims, risk engineering work closely with our insureds. Communication is key, and our insured should always feel that that relationship empowers us as a team to address areas for improvement, mitigate damage and look to reduce accidents that are within your control. At Astrus, we have a low impact program in place that is geared towards mitigating, defending potentially exaggerated injury claims by evaluating impact damage, which is VForce post-accident, is something Geoffrey had mentioned previously. Several other tools are useful, such as structured settlements, setting aside future medical cost payments and early settlement intervention with mediations.

Danette Beck (22:14):
That was awesome, Bob. Dave, do you have anything to add?

Dave Conway (22:17):
Sure, I can add on a little bit to what Bob had to say. My advice would be that the company owners out there not accept the status quo. What we've been doing year over year over year in the past doesn't have to be accepted any longer. The main objective I would like to see clients make is changing the culture, informing their teams so that they understand the impact of having the accidents, the cost on the company, the downtime and so forth. I'd say the real issue is try to change the culture, gain respect for their over-the-road exposures and what happens if you don't.

Danette Beck (22:56):
Thanks, Dave. Alright, Geoffrey. Last word, what do you got?

Geoffrey Hall (23:01):
Alright, Danette. What we try and bring to the table at Astrus with our insureds is we have a macro perspective, a global perspective, a national perspective, and we're dealing with contractors that are for the most part regional or single state. What we can find are best practices that we see evolving in different areas of the country and bring those best practices to our insureds and show them here are strategies that are being utilized that are more effective. To Dave's point, you have to stay away from the status quo, you have to continue to move on. As Bob mentioned, you have to go through different strategies across the spectrum. Claims, risk engineering, underwriting, we're all trying to combine these things. We have the capacity by seeing everything across all 50 states, we can see what works, what's not working and also try and identify future trends to bring our insureds up to speed. What we try to do is we try to work in partnership with them, evaluate the resources they have, the strategies that they're currently utilizing and see how we can help them move to the next level. It's all about moving forward and today's point, an excellent term, avoiding the status quo.

Danette Beck (24:21):
Awesome. All about moving forward and customized solutions for our individual clients based on their needs with a global reach. Thank you, all three of you, for being here today. That's it for today's episode. Thank you for tuning in. If you found this conversation helpful, pass it along to a colleague and make sure you subscribe so you don't miss what's next. You can find us on YouTube, LinkedIn and Instagram under Astrus Insurance Solutions. From all of us at Astrus, here's to building a smarter, safer and stronger industry together.