Commercial Auto Claims Costs Fueled by Attorney Involvement: Study

According to a study conducted by the American Property Casualty Insurance Association (APCIA) and Milliman, attorney involvement in commercial auto insurance claims has increased in recent years, as have costs and resolution times.

Source: Advisen | Published on February 9, 2022

Digital claims process

The report discovered a 21.3 percent increase in total losses between 2015 and 2019, bringing the average cost to $149,494 after analyzing four years of claims data (including both the loss and loss adjustment expenses). Claims closed in 2019 involving an attorney were also found to cost more than 14 times more on average than claims closed without the involvement of an attorney, according to APCIA. In 2019, these claims accounted for 86.7 percent of total losses and loss adjustment expenses, despite accounting for just under 30 percent of all claims.

"An increasing level of attorney involvement in commercial auto claims is a serious concern." Commercial auto operations are critical to the U.S. economy because they ensure that products reach retailer shelves, goods arrive at every consumer's door, and parts and supplies reach manufacturers. "Artificially increasing trucking company costs through increased attorney involvement will not only have a direct impact on those companies, but it will also have broader ramifications for the economy and consumers," said Stef Zielezienski, APCIA executive vice president and chief legal officer, in a report statement.

The report also revealed a more than 100-day increase in the average time it takes to resolve claims between 2015 and 2019. Longer resolution times, also known as "cycle time," are typically associated with higher costs. According to APCIA, the average cycle time for claims closed in 2019 with both an attorney and a loss of more than $500,000 was 1,272. However, claims settled without the assistance of an attorney closed 35 days faster on average in 2019 than in 2015.

Over the four-year period, claims in general became more expensive: APCIA discovered a 50% increase in the percentage of claims with a loss of more than $500,000. And, despite accounting for only 1.5 percent of total claims in 2019, these claims accounted for nearly half (45.4 percent) of all losses and loss adjustment expenses. According to the report, claims ranging from $100,000 to $500,000 accounted for 4.6 percent of claims and 29.2 percent of losses and expenses in 2019.

According to a 2021 report from AM Best, commercial auto insurers have struggled over the last decade, with pricing lagging behind loss costs and more than $22 billion in underwriting losses between 2011 and 2020. The line saw its best results in a decade in 2020, but with driving returning to pre-pandemic levels and courts reopening, Best predicts that the forecast will remain negative.

According to recent broker forecasts, commercial auto insurance rates have begun to level off from their hard-market highs. However, challenges remain as transportation accounts deal with driver shortages and increased demand for quick deliveries. In recent years, commercial auto insurers have turned to alternative risk transfer and, in some cases, technology to reduce their risks, according to brokers.