There are many factors that insurance agencies evaluate when underwriting a commercial automobile insurance policy. Some of the initial exposures an underwriter will assess include the insured’s previous insurance and credit history, vehicle operator driving history, vehicle condition, and use of safety programs.

But there’s also a rating system that most insurers employ to calculate commercial auto insurance premiums and liability coverage. This class rating approach, developed by the Insurance Services Office, allows insurers to predict losses more accurately.

One of the first considerations is whether or not the vehicle is part of a fleet, as there are fleet and non-fleet rates. Fleets comprise two general categories: trucks, tractors and trailers, and passenger vehicles.

The ratings for trucks, tractors and trailers are based on several factors including size, use and radius of operation. Size class is assigned based on gross vehicle weight (GVW) for trucks and gross combined weight (GCW) for truck-tractors, which is the maximum weight when loaded to capacity. The classifications for trucks range from light, which would cover vehicles like a pick-up truck through to extra-heavy trucks, which would apply to vehicles like cement mixers and dump trucks.

Size is a very important factor when determining risk. The higher the GVW, the higher the exposure because there is a greater likelihood of more damage to both property and people when a heavy truck is involved in a collision. This in turn, results in increased rates.

Vehicle use is also important. The type of travel a vehicle undertakes has a very significant influence on its accident risk, therefore, use class is also considered when underwriting commercial auto insurance.

There are three types of use class which may be assigned: service, retail or commercial. Service Use applies mainly to vehicles transporting equipment and materials or personnel to job sites; Retail Use is designated for trucks delivering items to households; and Commercial Use covers any other vehicle that does not qualify for the other two categories.

The radius of use is another factor that is assessed by the underwriter, which is a calculation of the distance a vehicle normally travels in a day. Vehicles are then classified into one of three categories: Local, up to 50 miles; Intermediate, 51 – 200 miles; and Long Distance, which is more than 200 miles. Just like the size classifications, the greater the distance traveled, the greater the premium as the probability for accidents is higher for those vehicles traveling longer distances.

The other variables that can affect premiums are rating territory and vehicle age. Rating territories are based on the risk in the specific geographical area that the vehicle is housed. Factors that are taken into account when assessing a rating territory include population density, traffic and crime rates. Those areas – typically urban – that have more traffic and more crime, result in higher rates.

The age of the vehicle must also be taken into account in determining premiums, as losses are calculated on the vehicle’s actual cash value, (the most the insurer will pay for a total loss), which decreases with age. Because the value of a vehicle decreases the older it gets, the physical damage premiums typically decrease as well.

While the class rating system is widely used for assessing exposure, there are other rating techniques that may be applied: experience rating and schedule rating.

An experience rating allows insurance agencies to adjust the insured’s premium based on their current claims history. It may also compare the insured party’s loss amount to that of similar insureds, to determine if the policyholder is a higher or lower risk than similar operators.

Schedule rating, on the other hand, looks at factors outside of class rates and claims history, seeking to modify liability premiums via a system of credits and debits for specific criteria pertaining to the insured’s operations, like driver training and safety programs.

The more you understand how all of these ratings affect your commercial automobile insurance premiums, the more you can do as a business owner to mitigate the costs. Your agent should also be able to advise you on ways to minimize your risk and thus reduce your commercial automobile insurance costs.