The importance of measuring claims frequency and claims severity

Rising insurance premiums in the transportation industry

Trucking Companies face several factors that continue to push insurance premiums higher for the transportation industry. Nuclear claims verdicts, increased collision repair costs, and more contribute to increased insurance premiums. While the rising costs associated may be out of your company’s control, how often your trucks get into accidents, and how severe those accidents are can make a big difference in securing better insurance premiums. 

Insurance companies review many parts of the operation when considering the overall insurability of a transportation company. Reviewing driver files, experience confirmation in the application process, analyzing carrier safety profiles, and fleet maintenance strategies are included in their review. Poor findings in any one of these areas often indicate a potentially more significant risk. Why? It often leads to higher claims frequency and claims severity.  

What is meant by claims frequency and claims severity?

To help keep your insurance premium under control, there are two areas to bring attention to in your transportation operation: claims frequency and claims severity. 

Claims Frequency: The number of claims an insurance carrier has. If your fleet has a high frequency of claims, it increases the probability of experiencing a severe claim.   

Claims Severity: The cost per claim. The higher the cost of claims, the higher the severity.  

Insurance companies put a lens on these two factors when determining whether the fleet is desirable to insure. Why? Insurance carriers look at data for trends, shifts in behaviour, remedial training, and other indicators to understand whether the trucking company is taking necessary steps to operate safely.  

While this may seem like a straightforward concept, there is still a position held by some in the transportation industry that “we know we have many small accidents and collisions, but we haven’t had any big claims.” But from the insurance company’s perspective, a high claim frequency equals a severe claim waiting to happen. 

Companies that can keep claims frequency under control have a greater chance to keep claims severity under control, making them more insurable in today’s hard market.

Reducing claims frequency and severity can lead to reduced insurance premiums

It is essential to check how you are doing today concerning claims frequency and severity data. Our team at Bryson is happy to review your claims history to provide a second lens on how an insurance company may be looking at your operation.  

Once that baseline is established, insurance companies like building a relationship with the fleets they insure. Fleets that are open to sharing information with insurance companies, track data closely, document, and demonstrate a safety culture improve insurance carrier trust and respect.  

Documentation and transparency are a great first step, but it’s even more pivotal for fleets to put their findings into action. Utilizing the data to help direct hiring, improve driver retention, provide more in-depth driver training, and more shows the insurance company that meaningful action is in place to improve continuously.  

Of course, the final test is showing a positive trend in controlling both claims frequency and claims severity. Improving these two metrics goes beyond reducing direct insurance costs.  It also protects drivers, others who share the road with your vehicles, expensive equipment, and your company’s reputation in the industry.  

We are happy to work with your fleet in moving toward running a safe operation. We have found that companies who invest in safety also reap long-term profitability. To dive deeper into this, email me directly at scourtney@brysoninsurance.ca or complete the contact box in the sidebar.