US Commercial Auto Insurance Faces Growing Challenges Amid Losses

The US commercial auto insurance segment experienced significant financial strain in 2023, with a net loss of $5 billion and further deterioration in results during the first half of 2024, according to a recent AM Best report. Despite efforts to improve pricing adequacy and targeted underwriting actions, commercial auto insurance continues to underperform compared to other property-casualty (P&C) lines. 

The report, titled "Different Year, Same Story: Deteriorating Commercial Auto Results," highlights factors such as rising accident frequency and severity driven by distracted driving and a shortage of experienced drivers. These challenges, combined with social inflation, have led to adverse loss reserve development for commercial auto insurers. 

While overall US commercial lines, including workers' compensation and surety, have benefited from strong underwriting performance and disciplined market practices, commercial auto has been an ongoing weak spot in the P&C sector. The line has posted net underwriting losses each year from 2013 to 2023.

"The level of deterioration in 2022 and 2023 was notable, although it was due partly to the artificial improvement in results in the prior 2 years, owing to fewer private passenger and commercial vehicles on the road because of the COVID-19 pandemic," said David Blades, associate director, AM Best. "This is reflected in our negative outlook for the segment, which we issued in March 2024." 

The report also highlights rising loss severity, exacerbated by the higher costs associated with repairing modern, technology-laden vehicles. The average cost of physical damage claims can be problematic, but third-party liability losses are driving the deteriorating commercial auto results. According to Christopher Graham, AM Best's senior industry analyst, "Social inflation, including the impact of nuclear verdicts, has been a large contributor to increased loss severity." 

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