Navigating Business Auto Risk: Patterns to Monitor and Strategize for

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Edited January 2026

 by David Aloyan, Jerry Conrey, Kyle Langan

Business Auto

Business auto hazards include deliveries, client meetings, and daily commutes or errands. The ownership, maintenance, or use of vehicles creates exposures to loss.¹ To mitigate these exposures, a business must properly title and insure its vehicles. Companies also need strategies to promote safe driving and to finance the risk of bodily injury or property damage perils.

Trends

In the U.S., a commercial driver shortage reached record highs of 82,000 last year, according to the American Trucking Associations. To combat this shortage, some businesses have adjusted their driver attraction strategies. The challenge many businesses have faced is the need to lower applicant standards to fill open positions. These drivers often have less experience, which increases accident frequency and compounds commercial auto losses. Auto repair shops are also facing staff shortages in skilled positions, further exacerbating labor costs for vehicle repairs and replacement.²

Technological advancements have made vehicles safer and more efficient. However, as commercial vehicles are equipped with a variety of sophisticated features, repairs have become more expensive. In addition, ongoing supply chain issues and increased demand for certain components have led to inflated prices for vehicle parts. Vehicle replacement expenses have also risen significantly. The market for new and used vehicles—especially commercial vehicles—has experienced sharp price increases in recent years.³ As a result, property damage severity has increased.

According to industry data, losses for bodily injury claims have increased in severity, not just frequency, and the resulting injury-related expenses are reflected in commercial auto insurance pricing.⁴

Phone use while driving has become a major concern. As distracted driving incidents have increased, commercial auto insurance rates have climbed to address texting and driving exposures.⁵ An argument can be made that the pandemic played a causal role by increasing dependence on—and addiction to—technology.

Insurers must also factor in social inflation and nuclear verdicts when pricing commercial auto insurance policies, which has contributed to higher rates.⁶

Protecting Your Company’s Assets and Cash Flows

Most business owners view insurance as an expense, since premiums are recorded as a line-item expense on a company’s income statement. Rarely considered, however, is that insurance expense is really a financing cost used to “hedge” against the risk of loss to the assets on your balance sheet and the cash flows generated from operations.

Without being adequately “hedged” against loss, you are then faced with the decision to finance that loss using the assets on your balance sheet—i.e., cash, the sale of other assets, or debt financing. Both options deplete the equity value of your company and carry a higher cost of capital by either utilizing company assets or borrowing.

Example

Assume your company sustains a $1,000,000 loss that was not “hedged,” meaning it was uninsured. An excess liability policy for $1,000,000 would carry a premium cost of $15,000, or 1.5% of the capital.

Now assume your company’s net income is $500,000 for the most recent fiscal year, and total assets on your balance sheet equal $5,000,000. This means your assets are generating a 10% return ($500,000 ÷ $5,000,000). Further, assume your company’s current cost to borrow $1,000,000 is 8%.

Therefore, your choice to finance the loss is either $15,000 for a $1,000,000 excess liability insurance policy (risk transfer), $100,000 in lost returns by depleting $1,000,000 of company assets, or $80,000 in interest expense to borrow $1,000,000.

Which option carries the lowest cost of capital? In this case, the $1,000,000 excess liability policy at a $15,000 premium—or a 1.5% cost of capital—is clearly the most intelligent choice. Additionally, you do not have to repay the $1,000,000, which would be required under the other two options: using existing assets or repaying a $1,000,000 loan.

So, if your insurance limits are below the replacement cost of your company’s assets or the cash flows from operations—thereby exposing your equity value—consider your options for financing that loss along with the associated financing expenses. This analysis will lead you to a more informed decision.

We can help you determine the proper coverage. Self-insuring, debt financing, and risk financing/insurance are all viable options. Why not utilize a seasoned risk manager to help you design an optimal, tailored strategy? Our team can help you achieve true protection while reducing costs and increasing profits. Contact us today.

Components of Business Auto Liability Coverage

How is coverage determined for business auto insurance? Symbol 1 provides the broadest type of liability coverage available, as it applies to “Any Auto” used for commercial purposes.

Hired autos (Symbol 8) refer to autos that are leased, hired, rented, or borrowed. However, “the term does not include any auto the named insured leases, hires, rents, or borrows from any of its employees, partners, limited liability company members, or members of their households.”⁷

Non-owned autos (Symbol 9) “apply to vehicles owned by employees and used for company business.”⁸

Symbols 8 and 9 effectively expand upon Symbol 7, which applies to specifically described autos. This protection follows vehicles specifically named in the policy and for which a premium is charged. Operations may not require Symbol 1, and it may not be available in every situation. Symbols 7, 8, and 9 may adequately protect an entity for all relevant auto exposures.

Why would a business need coverage beyond specifically scheduled autos? The answer lies in non-ownership liability. Companies should seek protection for liability arising from employees’ use of personal vehicles in the course of company business. For example, if an employee drives a personal vehicle for business purposes and causes an accident, the employer’s non-ownership liability coverage can help pay for third-party property damage and potential bodily injury. If the third party later files suit for additional damages, this coverage can also help cover defense expenses.

It is important to note that this protection is liability insurance for the entity; it does not pay for damages arising from an accident when an employee is driving for personal reasons unrelated to business. It is intended to cover liability damages—including settlements or judgments, attorney fees, and other court costs—that arise from an auto accident for which the company or its employee is responsible. An employee’s normal daily commute in a personal vehicle remains the employee’s responsibility.

Lastly, executive officers may not carry personal auto insurance if he or she is furnished with a company vehicle. In this situation, the commercial auto policy should include a “Drive Other Car” endorsement so the individual named in the endorsement (including a resident spouse) is covered while driving a non-owned auto for personal use.⁹

References

[1]

Survey of Commercial Insurance. The Institutes (April, 2018).

[2-6]

Zywave

[7]

Hired automobile. IRMI. (n.d.). https://www.irmi.com/term/insurance-definitions/hired-automobile

[8]

Nonowned automobile. IRMI. (n.d.). https://www.irmi.com/term/insurance-definitions/nonowned-automobile

[9]

Drive other car endorsement (DOC). IRMI. (n.d.). https://www.irmi.com/term/insurance-definitions/drive-other-car-endorsement