Hub’s Chapman: Auto market faces instability amid rising litigation and claims costs

By Mia MacGregor

Feb 3 - (The Insurer) - Escalating claims and litigation expenses mean the auto market has emerged as the least stable of the core insurance sectors, Hub’s Mike Chapman has told The Insurer.

In an interview with this publication, Chapman, who serves as Hub’s national director of commercial markets and president of Hub’s south and central regions, said auto insurance is “just a bad business line now”.

“The cost of claims is too high, and the cost of litigation is rising,” Chapman stated.

The significant amount of technological hardware contained within modern vehicles is a significant factor in the rising claims costs, the Hub executive explained.

“When you think about the most basic car now, it's going to have sensors all over the car. It's going to have things built into the windshield that were never there [before], and it's going to have a computer panel in the center with GPS and everything else on it,” he said.

Chapman explained that even minor accidents involving vehicles with advanced technology can lead to expensive repairs.

“When you have a relatively small accident with one of those vehicles, whether it's in a fleet, personal auto, or commercial auto, they suffer more damage than in the past and require a more sophisticated fix.”

He explained that claims inflation is fueled by these technological repair costs and compounded by the growing number of attorneys pursuing auto and truck claims.

Additionally, he noted that distracted driving, especially the use of cell phones, remains another persistent issue contributing to accidents.

Driver shortages, particularly for medium and large delivery trucks, further destabilise the commercial auto market, according to Chapman.

“The driver shortage for final-mile delivery trucks comes with training, litigation, and cost components. Companies can’t adjust rates fast enough because people just won’t pay them,” Chapman said.

Some commercial auto businesses are opting to carry only liability coverage, choosing to self-insure for vehicle repairs. “That's not necessarily a great solution,” Chapman warned.

Property market trends

Regarding the property insurance market, Chapman noted that despite recent natural catastrophe events, the market is not expected to undergo significant changes.

“We’re coming off a couple of hurricanes at the end of the season and facing a massive wildfire issue, which could be a $50bn insured loss,” Chapman said.

“However, there's a feeling that these events, while impactful, are not likely to change the general outlook for the property space.

“So we see rates going down, and I think property has gotten to the point that it's not a hard market, it's just more of a stable market,” he added.

Shifts in client buying patterns

There are changes in clients’ buying patterns, Chapman noted.

According to the Hub executive, while there have been limited changes in commercial lines property purchasing, he noted significant disruptions in personal lines.

In Florida, for instance, Chapman explained that many high-net-worth homeowners have stopped buying insurance if they don't have mortgages.

“When one in seven homes valued over $5mn is uninsured, it becomes a real problem,” he said.

This has led to a focus on encouraging homeowners to “at least buy wind, or flood coverage, and protect yourself to some degree”.

“That's become an interesting pattern in a few places, even in California. With the wildfires, there were a lot of uninsured homes,” Chapman said.

GL and workers’ comp

The general liability and excess/umbrella sectors are really being driven by the class of business and the geography, in particular where a client is based and a case may go to trial.

He said those market segments are “flat to softening as well”.

Additionally, Chapman said that workers' compensation, being highly regulated, remains relatively stable.

Cyber market developments

When it comes to cyber, Chapman said the underwriting process in the segment continues to evolve.

"Previously, recommendations like multi-factor authentication and firewalls were optional. Now, carriers simply won't quote unless those measures are already in place,” he said.

Despite ongoing incidents, Chapman noted that pricing for cyber insurance is trending downward.

He suggested the potential need for a catastrophe fund driven by event size rather than peril type.

“A catastrophe could be a massive cyber attack on the energy grid, a wildfire, a flood, or a school shooting. The size and cost of the event would determine the funding approach,” he said.

Talent recruitment challenges

Away from market segments, Chapman also discussed broader industry developments.

He expressed concerns about talent recruitment and retention in the insurance industry.

“You're aging out a massive part of the workforce, and now you need people with better technical skills than brokers or underwriters used to require. The talent battle is going to remain a big one,” he said.

Chapman noted that many companies are moving back to office-based work, with hybrid models requiring at least three days in the office.

“I think you're going to start hearing more talk about the talent thing now, with employers arguing that people need to get back in the office and be interacting and learning as a group,” he added, acknowledging the cultural challenges of balancing remote work with in-office collaboration.

Carrier behavior and AI advancements

During the interview, Chapman also highlighted an interesting shift in carrier behavior, with a move away from experimental AI toward efficiency gains.

“Good carriers are moving away from experimentation with AI, and they're getting to the point that they're gaining efficiencies.”

A few years ago, Chapman said people were using machine learning from old days, but they weren't using AI yet.

“Now it's moving fast, and that's a good thing if it allows for human interaction to be much more focused on the customer need, as opposed to exchanging data.” he said.