Commercial Auto Insurance Faces Steep Losses Despite Rate Hikes, AM Best Reports
Thursday, November 14th, 2024 Auto Litigation Risk Management UnderwritingDespite continuous rate increases and targeted underwriting efforts, the commercial auto insurance sector remains mired in unprofitability, as detailed in a recent AM Best report. In 2023, the sector faced its worst year on record, enduring a $5 billion underwriting loss and a combined ratio of 109.2%. Factors driving these results include a significant rise in loss severity and the impact of social inflation, which has pushed jury awards and settlements for commercial vehicle claims to unprecedented levels. The direct cost of claims has also surged as vehicle technology becomes more complex, raising repair expenses due to costly components.
Challenges such as distracted driving, a shortage of experienced commercial drivers, and increased litigation have further strained the sector, leading to elevated claim frequency and severity. The trend of third-party litigation funding has also contributed to rising legal costs, making claim resolution more complex and expensive. Insurers have responded by implementing stringent underwriting measures, with commercial auto pricing having risen for 52 consecutive quarters, yet these increases have not been sufficient to counteract the high loss ratio.
Some insurers, like Progressive and specialized commercial auto carriers such as Old Republic and Sentry, have found relative success by focusing on loss control measures, driver training, and strategic underwriting discipline. However, AM Best projects continued difficulties for the sector, with 2024’s first-half results indicating ongoing financial challenges despite robust premium adjustments.
