Trends in Commercial Auto and General Liability Joseph M. Palmer, FCAS, CPCU
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Transcript Trends in Commercial Auto and General Liability Joseph M. Palmer, FCAS, CPCU
Trends in Commercial Auto and
General Liability
Joseph M. Palmer, FCAS, CPCU
Assistant Vice President
Increased Limits & Rating Plans Division
Insurance Services Office, Inc.
Commercial Automobile
Overview
Latest Basic Limit Trends
Higher Limits Trends
Recent History
Frequency Trends
ILF Review Trends
Loss Layer Trends
Commercial Auto Liability
Severity Trends
Trends Based on Calendar Year Data
Through Latest Evaluation (9/30/2002)
State Data Credibility Weighted With
Multistate Data
24-pt. & 12-pt. (Quarterly) Fits Examined
12-pt. Fits Generally Used
Incurred Data Also Examined
Commercial Automobile
Bodily Injury
Data Through 9/30/2002
Paid Loss Data --- $25,000 Limit
12-point:
+ 3.8%
24-point:
+ 3.0%
Commercial Automobile
Bodily Injury
Data Through 6/30/2002
Incurred Loss Data --- $25,000 Limit
12-point:
+ 3.9%
24-point:
+ 3.9%
Commercial Automobile
Bodily Injury
Data Through 9/30/2002
Paid Loss Data --- $100,000 Limit
12-point:
+ 4.9%
24-point:
+ 4.1%
Commercial Automobile
Bodily Injury
Data Through 6/30/2002
Incurred Loss Data --- $100,000 Limit
12-point:
+ 5.7%
24-point:
+ 5.2%
Commercial Auto Bodily Injury
History of 25K and 100K Trends
March, 1999 through Oct. 2002
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
25,000
100,000
Commercial Automobile
Bodily Injury
Data Through 9/30/2002
Paid Loss Data --- $1 Million Limit
12-point:
+ 6.8%
24-point:
+ 6.7%
Commercial Automobile
Bodily Injury
Data Through 9/30/2002
Paid Loss Data --- Total Limits
12-point:
+ 7.5%
24-point:
+ 7.1%
Commercial Automobile
Bodily Injury
Data Through 6/30/2002
Incurred Loss Data --- Total Limits
12-point:
+ 6.6%
24-point:
+ 6.5%
Commercial Auto Bodily Injury
History of 1 Million and Total Limits Trends
March, 1999 through Oct. 2002
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1 Mill.
Total
Commercial Automobile
Property Damage
Data Through 9/30/2002
Paid Loss Data --- Total Limits
12-point:
+ 6.8%
24-point:
+ 5.7%
Commercial Automobile
Property Damage
Data Through 6/30/2002
Incurred Loss Data --- Total Limits
12-point:
+ 5.4%
24-point:
+ 5.0%
Commercial Auto Property Damage
History of Total Limits Trends
March, 1999 through Oct. 2002
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Commercial Automobile
Statewide Variation
Bodily Injury Severity
Low Statewide Credibility
All Commercial Auto Data used in
analyses
Only 4 States with Greater than 15%
Credibility
Limited Variation between States after
Trends are Credibility-Weighted
Commercial Automobile
Bodily Injury Frequency Trends
3/31/1996 through 12/31/2001
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Commercial Automobile
Property Damage Frequency Trends
3/31/1996 through 12/31/2001
5.8
5.6
5.4
5.2
5
4.8
4.6
4.4
4.2
Commercial Automobile
Policy Limit Distribution
ISO Database Composition:
70% at $1 Million Limit
5% at $300,000 Limit
15% at $500,000 Limit
5% at $2 Million Limit
Varies by Table
Commercial Automobile
ILF Review Trends
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1994
1995
1996
1997
1998
1999
2000
2001
2002
Commercial Automobile
Bodily Injury Excess Trends
Data Through 9/30/2002
Paid Loss Data --- Excess Limits
$400,000 xs $100,000
12-point:
+ 9.0%
24-point:
+ 9.4%
Commercial Automobile
Bodily Injury Excess Trends
Data Through 9/30/2002
Paid Loss Data --- Excess Limits
$500,000 xs $500,000
12-point:
+ 11.0%
24-point:
+ 14.9%
General Liability
Overview
Latest Trends --- Basic, Total, ALAE
Recent History
Frequency Trends
ILF Review Trends
General Liability --- Severity
Trends Based on Accident Year Paid
Experience (including ALAE)
Recent Points Heavily Dependent on LDFs
10-yr., 8-yr., & 6-yr. Fits Examined to
Select Severity Trend Factor
Multistate Review --- Separately by Subline
Stability is a Concern
General Liability --- OL&T
BI Severity Trends (10 yr.)
$100,000 Indemnity
+ 3.1%
ALAE
+ 6.3%
Losses and ALAE
$100,000 Limit: + 4.0%
Total Limits:
+ 5.4%
General Liability --- OL&T
PD Severity Trends (10 yr.)
$100,000 Indemnity
+ 6.1%
ALAE
+ 10.5%
Losses and ALAE
$100,000 Limit: + 8.2%
Total Limits:
+ 8.6%
General Liability
OL&T Severity Trends
Calendar 1997 through Fiscal 2003
9
8
7
6
5
4
3
2
1
0
BI
PD
General Liability --- M&C
BI Severity Trends (10 yr.)
$100,000 Indemnity
+ 2.3%
ALAE
+ 5.6%
Losses and ALAE
$100,000 Limit: + 3.6%
Total Limits:
+ 4.7%
General Liability --- M&C
PD Severity Trends (10 yr.)
$100,000 Indemnity
+ 6.7%
ALAE
+ 7.1%
Losses and ALAE
$100,000 Limit: + 6.8%
Total Limits:
+ 7.2%
General Liability
M&C Severity Trends
Calendar 1997 through Fiscal 2003
8
7
6
5
4
3
2
1
0
BI
PD
General Liability --- Products
BI Severity Trends (10 yr.)
$100,000 Indemnity
+ 2.3%
ALAE
+ 7.8%
Losses and ALAE
$100,000 Limit: + 5.2%
Total Limits:
+ 4.3%
General Liability --- Products (a)
BI Severity Trends (10 yr.)
$100,000 Indemnity
+ 2.6%
ALAE
+ 12.4%
Losses and ALAE
$100,000 Limit: + 8.2%
Total Limits:
+ 7.1%
General Liability --- Products
PD Severity Trends (10 yr.)
$100,000 Indemnity
+ 4.2%
ALAE
+ 7.4%
Losses and ALAE
$100,000 Limit: + 5.8%
Total Limits:
+ 5.4%
General Liability --- Products (a)
PD Severity Trends (10 yr.)
$100,000 Indemnity
+ 7.0%
ALAE
+ 10.6%
Losses and ALAE
$100,000 Limit: + 8.8%
Total Limits:
+ 10.2%
General Liability
Products Severity Trends
6.0%
5.0%
4.0%
BI
PD
3.0%
2.0%
1.0%
0.0%
1999
2000
2001
2002
2003
General Liability --- LP/CO
BI Severity Trends (10 yr.)
$100,000 Indemnity
+ 3.7%
ALAE
+ 9.3%
Losses and ALAE
$100,000 Limit: + 6.3%
Total Limits:
+ 8.7%
General Liability --- LP/CO (a)
BI Severity Trends (10 yr.)
$100,000 Indemnity
- 2.4%
ALAE
- 0.8%
Losses and ALAE
$100,000 Limit: - 1.5%
Total Limits:
- 2.4%
General Liability --- LP/CO
PD Severity Trends (10 yr.)
$100,000 Indemnity
+ 6.5%
ALAE
+ 8.8%
Losses and ALAE
$100,000 Limit: + 7.4%
Total Limits:
+ 7.4%
General Liability --- LP/CO (a)
PD Severity Trends (10 yr.)
$100,000 Indemnity
+ 9.8%
ALAE
+ 12.1%
Losses and ALAE
$100,000 Limit: + 10.9%
Total Limits:
+ 9.8%
General Liability
LP/CO Severity Trends
9%
8%
7%
6%
5%
BI
PD
4%
3%
2%
1%
0%
1999
2000
2001
2002
2003
0
AYE
6/30/2001
6/30/1998
6/30/1995
6/30/1992
6/30/1989
6/30/1986
6/30/1983
6/30/1980
6/30/1977
6/30/1974
General Liability
OL&T Frequency Trends
140
120
100
80
60
40
20
AYE
6/30/2001
6/30/1998
6/30/1995
6/30/1992
6/30/1989
6/30/1986
6/30/1983
6/30/1980
6/30/1977
6/30/1974
6/30/1971
General Liability
M&C Frequency Trends
160
140
120
100
80
60
40
20
0
General Liability
ILF Review Trends
PremOps
Products
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
General Liability
Policy Limit Distribution
ISO Database Composition:
85% at $1 Million Limit
4% at $500,000 Limit
5-6% at $2 Million Limit
1-2% at $5 Million Limit
Sample Definition of
Construction Defects
A construction defect is “the failure of the
building or any building component to be
erected in a reasonably workman like manner
or to perform in the manner intended by the
manufacturer or reasonably expected by the
buyer, which proximately causes damage to
the structure.” (CA State Jury Instructions)
Types of Defects
Many courts have recognized two
primary categories of defects for which
damages are recoverable:
Defects in design, workmanship and
materials
Landslide and earth settlement problems
Examples of Design Defects
Faulty
drainage
Improper landscaping
and irrigation
Improper materials
Structural failure or
collapse
Defective plumbing
Faulty electrical wiring
Inadequate
environmental
controls
Defective lighting
or security
Insufficient
insulation
Poor sound
protection
Landslide Problems
Expansive soils
Underground water or
streams
Ancient land slides
Vertical settlement
Horizontal movement
Land sliding
Surface failures
Improper compaction
Inadequate grading
and drainage
Completed Operations Data
ISO
Data
Data
does not identify construction defects
claims
Completed
Looked
Operations
at latest 5 years (1997 – 2001)
California
data is not included
Five Year Experience Ratios
Completed Operations
Experience
Ratio – Amount needed to cover losses
only
All states (ex. CA) = 1.46
Top 5
Nevada – 7.56
Oregon – 2.48
South Carolina – 2.30
Washington – 2.17
Arizona – 2.05
Trends in Commercial Auto and
General Liability
Joseph M. Palmer, FCAS, CPCU
Assistant Vice President
Increased Limits & Rating Plans Division
Insurance Services Office, Inc.
201-469-2599