In early 2025, commercial auto insurers in South Carolina began filing rates that effectively split a single fleet into two separate risk pools. One pool — drivers who log fewer than roughly 12,000 miles per year — received discounts of 15–25%. The other pool — drivers above that threshold — faced surcharges of 10–20%. The mechanism behind the split is a usage-based rating rule approved by the South Carolina Department of Insurance in late 2024, allowing carriers to apply individual mileage-based modifiers to vehicles within a fleet. For actuaries, the change represents a shift from pooled flat rates toward granular risk classification. For fleet managers, it means premium volatility tied to how accurately they assign drivers to low-mileage routes. This article walks through the rule, the telematics boundary, the actuarial logic, and the broader adoption across the Southeast.

A Single Fleet, Two Price Tags

Before the rule change, a commercial auto policy in South Carolina priced every vehicle in a fleet at the same base rate, adjusted only by class (e.g., vehicle type, territory). A delivery van driving 8,000 miles per year paid the same as one driving 25,000 miles, as long as they shared the same classification. The flat rate embedded a cross-subsidy: low-mileage drivers overpaid relative to their risk, and high-mileage drivers underpaid.

The new rule, filed by Liberty Mutual and Progressive in mid-2024 and approved before year-end, lets insurers assign a mileage-based modifier to each vehicle. The modifier is derived from telematics data — either an OBD-II plug or a smartphone app that tracks miles driven. The result is two distinct price tags for vehicles that were once identical on paper. Early filings show discounts of 15–25% for vehicles below the threshold and surcharges of 10–20% for those above.

The South Carolina Department of Insurance approved the tiered rating approach after reviewing actuarial demonstrations that mileage correlates strongly with claim frequency. The regulator's order noted that the change improves risk classification and reduces adverse selection within fleets. For policyholders, the effect is immediate: a fleet with a mix of low- and high-mileage drivers sees its total premium adjust — not uniformly, but per vehicle.

As of mid-2026, at least a dozen carriers have filed similar rules in South Carolina, according to state filings reviewed by this publication. The market is moving toward usage-based rating for commercial fleets, and the two-tier structure is the most common starting point.

The Rule Change That Enabled the Split

Prior to the rule change, South Carolina's commercial auto rating rules required that all vehicles in a fleet be rated at the same per-vehicle rate within a class. Insurers could not apply individual modifiers based on mileage or other usage metrics. The flat-rate approach simplified administration but ignored the fact that mileage is a primary driver of loss exposure.

The rule change, codified as an amendment to Regulation 69-20, explicitly permits insurers to use mileage-based rating factors derived from telematics data. The amendment was filed by the South Carolina Department of Insurance in October 2024 after a public comment period that drew responses from three major carrier groups and two fleet associations. The final rule took effect on January 1, 2025.

Liberty Mutual was the first to file a usage-based commercial auto program under the new rule, followed by Progressive within the same month. Both carriers used existing telematics platforms — Liberty Mutual's RightTrack for Business and Progressive's Snapshot for Commercial — to collect mileage data. The filings included actuarial memoranda showing that vehicles with annual mileage below 12,000 have roughly half the claim frequency of vehicles above 15,000 miles.

The rule does not mandate a specific threshold. Each carrier defines its own mileage bands and modifiers, subject to actuarial justification and regulatory approval. Some carriers set the threshold at 10,000 miles; others at 15,000. The flexibility allows insurers to calibrate the split to their own loss experience.

How Telematics Draws the Boundary

The boundary between the two risk tiers is drawn by telematics — a combination of hardware and software that records miles driven, time of day, and sometimes speed or braking patterns. For commercial fleets, the most common implementation is an OBD-II plug that transmits data via cellular or Bluetooth to the insurer's platform. Some carriers also offer smartphone-based tracking as a lower-cost alternative.

The threshold is set by the insurer, typically in the range of 10,000 to 15,000 miles per year. Vehicles that remain below the threshold for a consecutive 12-month rating period are assigned to the low-mileage tier. Those that exceed the threshold are moved to the high-mileage tier. The classification is recalculated at each policy renewal, so a driver who changes routes mid-year may see a tier change at the next renewal.

Accuracy of the telematics data is a concern. OBD-II plugs can be unplugged or swapped between vehicles. Smartphone apps rely on the driver carrying the phone. Insurers typically include a data-validation step: if the device reports zero miles for a month, the carrier may assign a default mileage estimate, often the fleet average, which could push a driver into the higher tier.

Fleet managers interviewed for this article report that the tier split has changed how they assign routes. Drivers with low-mileage routes — local deliveries, service calls within a small radius — are now a more valuable resource because their vehicles attract lower premiums. Some fleets have begun rotating drivers to keep mileage below the threshold, a behavioral response the carriers anticipated.

Actuarial Logic Behind the Two Tiers

From an actuarial standpoint, the two-tier structure is a response to a well-documented relationship: claim frequency increases with mileage, and the increase is not linear. Studies from the Insurance Institute for Highway Safety and several carrier internal analyses show that drivers in the 10,000–15,000 mile range have roughly 1.5 times the claim frequency of drivers under 10,000 miles. Above 15,000 miles, the frequency rises to 2–2.5 times.

The flat-rate system ignored this nonlinearity. Low-mileage drivers were effectively subsidizing high-mileage drivers, creating a classic adverse selection problem: fleets with a high proportion of low-mileage vehicles had an incentive to self-insure or seek alternative rating, while fleets with mostly high-mileage vehicles stayed in the pool, driving up loss ratios.

By splitting the fleet into two tiers, the insurer can align premium more closely with expected loss. The low-mileage tier receives a discount because its loss cost per vehicle is lower. The high-mileage tier pays a surcharge because its loss cost is higher. The overall effect is a more balanced risk pool within the fleet, reducing the cross-subsidy and improving the loss ratio.

Actuaries at Liberty Mutual estimated in their filing that the tier split would improve the fleet's aggregate loss ratio by roughly 5 points, assuming no change in driver behavior. The improvement comes from retaining low-mileage drivers who might otherwise leave the pooled rating, and from pricing high-mileage drivers more accurately so that their premium reflects their true exposure.

Impact on Premiums and Loss Ratios

The premium impact for individual fleets varies by mileage distribution. For a fleet where 60% of vehicles fall below the threshold, the total premium might drop 5–10%, because the discounts on the majority outweigh the surcharges on the minority. For a fleet with 80% above the threshold, total premium could rise 10–15%.

Carriers report that the tier split has reduced adverse selection within their commercial auto books. In the first half of 2025, Liberty Mutual's commercial auto loss ratio in South Carolina improved by roughly 4 points compared to the same period in 2024, according to a regulatory filing. Progressive reported a 3-point improvement. Both carriers attributed the improvement partly to the mileage-based tiering.

The regulator's approval order noted that better risk classification benefits both insurers and policyholders. Low-mileage fleets pay less, reducing the incentive to leave the market. High-mileage fleets pay more, but the price reflects their actual risk, making it easier for insurers to offer coverage rather than non-renew.

Reinsurers have taken notice. Bermuda-based reinsurers that underwrite commercial auto quota shares are monitoring the loss ratio trends in South Carolina as a potential model for other states. If the tier split proves sustainable, it could reduce the frequency of large loss ratio swings that have historically plagued commercial auto books.

Broader Adoption Across the Southeast

South Carolina's rule change did not happen in isolation. Georgia and Florida filed similar usage-based rating rules in early 2025, with effective dates in mid-2025. Both states cited South Carolina's experience as a reference. Nationwide Mutual began piloting a mileage-based tier program for commercial fleets in Georgia in April 2025.

Travelers reported in its Q2 2026 earnings that its commercial auto underwriting results improved in states where mileage-based rating is permitted, though the company did not break out the impact by state. The company's overall commercial auto loss ratio improved by 2.6 points year-over-year in the quarter, partly attributed to better risk segmentation.

Bermuda-based reinsurers, including those writing quota shares for U.S. commercial auto, are watching the trend. If loss ratios stabilize at lower levels, they may adjust their pricing models to reflect the reduced volatility. Some reinsurers have already begun asking cedents for mileage distribution data at the fleet level.

Industry observers expect more state approvals within two years. The National Association of Insurance Commissioners has a working group on usage-based insurance that is considering model guidelines for commercial auto mileage-based rating. The South Carolina approach — per-vehicle modifier with a single threshold — is likely to be the template.

What Fleet Managers Should Watch

For fleet managers, the tier split introduces new variables into premium management. The first is driver assignment: vehicles assigned to low-mileage routes will attract lower premiums, so managers should audit route assignments to ensure that low-mileage drivers are matched to vehicles in the low-mileage tier. A mismatch — a driver assigned to a high-mileage route but using a vehicle that was previously low-mileage — can trigger a tier change at renewal.

The second is telematics vendor selection. Not all devices report mileage with the same accuracy. Some OBD-II plugs are more reliable than smartphone apps, which can be affected by battery optimization settings. Fleet managers should negotiate with carriers on acceptable data sources and ensure that the telematics system is installed and functioning correctly across the fleet.

Third, mileage data should be audited quarterly. A driver who unplugs the device for a month may be assigned a default mileage estimate that pushes the vehicle into the high-mileage tier. Regular audits can catch these anomalies before they affect the premium at renewal.

Finally, fleet managers should plan for premium volatility. The tier split means that a fleet's total premium can change from year to year based on shifts in mileage distribution. A fleet that adds a long-haul route may see its premium jump, even if the number of vehicles stays the same. Budgeting for this volatility requires understanding the carrier's threshold and the fleet's mileage profile.

Trade-offs and Counter-Arguments: What Critics Say

Not everyone in the industry is convinced that the two-tier model is the optimal approach. Some actuaries argue that a binary split — low mileage versus high mileage — still oversimplifies the risk relationship. Mileage is a proxy for exposure, but it does not capture driving conditions, cargo type, or driver experience. A driver logging 10,000 miles on congested urban streets may face higher risk than a driver logging 15,000 miles on rural highways. The binary tier ignores such nuance.

Consumer advocates have raised concerns about data privacy. Telematics devices collect not just mileage but also location, time of day, and driving behavior. While insurers claim they only use mileage for the tier split, the data could theoretically be repurposed for more granular rating or even claims investigations. Fleet managers should review their carrier's data usage policies and ensure that telematics data is not shared with third parties without consent.

Another counter-argument is that the tier split may encourage gaming. Fleet managers could assign drivers to low-mileage routes on paper while the actual driving exceeds the threshold, if the telematics device is not monitored properly. Insurers are aware of this risk and have built in validation checks, but the potential for manipulation remains. Over time, carriers may need to invest in more sophisticated fraud detection, such as cross-referencing mileage with GPS data or fuel consumption.

From a regulatory perspective, there is a concern that the tier split could lead to redlining of certain territories. If carriers set thresholds that disproportionately affect fleets in urban or rural areas, the rule could inadvertently create geographic disparities. The South Carolina Department of Insurance has required carriers to demonstrate that their mileage bands are actuarially sound and not unfairly discriminatory. Early filings appear compliant, but ongoing monitoring is necessary.

Data Transparency and the Role of Reinsurers

Reinsurers are not just watching — they are actively shaping the evolution of mileage-based rating. Several Bermuda-based reinsurers have begun requesting granular mileage distribution data from cedents, not just aggregate loss ratios. This data allows reinsurers to model the tail risk of the high-mileage tier more accurately. For example, if a large fleet shifts a significant portion of its vehicles into the high-mileage tier, the reinsurer needs to understand the concentration of exposure.

One reinsurance analyst, speaking on condition of anonymity, noted that the two-tier model could reduce the volatility of commercial auto loss ratios by 10–15% over time, assuming consistent adoption. However, the analyst cautioned that the initial years may see adverse selection as fleets with predominantly low-mileage vehicles opt into the tiered rating, leaving a higher-risk pool for carriers that do not adopt the model. This dynamic could create a bifurcated market: progressive carriers offering tiered rates attract better risks, while laggards are left with worse pools.

For actuaries, the tier split is a step toward more precise pricing, but it is not the final destination. Some carriers are already testing three-tier or continuous mileage models. Progressive, for instance, has filed in some states for a continuous mileage factor that applies a sliding scale rather than a step function. The two-tier model is a pragmatic starting point, but the industry is likely to move toward finer gradations as telematics data quality improves and regulatory comfort grows.

Conclusion: A Model for the Future?

South Carolina's usage-based rating rule is a modest regulatory change with outsized implications. By allowing insurers to split a single fleet into two risk tiers based on mileage, it addresses a long-standing cross-subsidy in commercial auto insurance. The mechanics are straightforward: telematics determines the boundary, actuaries set the threshold, and the market adjusts premiums accordingly. Early results show improved loss ratios for early adopters, and other states are following suit.

For fleet managers, the rule introduces new operational considerations — driver assignment, telematics accuracy, and premium volatility — but also offers the potential for lower costs if mileage is managed effectively. For insurers, the rule improves risk classification and reduces adverse selection. For reinsurers, it promises more stable loss ratios and better data for modeling.

Critics raise valid concerns about oversimplification, privacy, and gaming, but these are manageable through regulation and industry best practices. The two-tier model is not perfect, but it is a clear improvement over flat-rate pooling. As more states adopt similar rules and carriers refine their approaches, the mileage-based tier could become the new normal for commercial auto rating across the United States.

This article is for informational purposes only and does not constitute professional actuarial, insurance, or legal advice. Fleet managers should consult with a qualified insurance professional to evaluate their specific situation.