US Commercial Auto Insurers See Return to Pre-Pandemic Struggles

After posting near break-even results in 2021, the US commercial auto insurance segment saw its underwriting losses climb to $3.3 billion in 2022, according to A.M. Best.

In a new report, Pre-Pandemic Woes Return to Commercial Auto, Best noted that commercial auto insurance has been one of the property-casualty industry's worst-performing lines of business since 2012. During that time, the segment generated a higher combined ratio every year than that of the broader commercial property-casualty insurance agency, the rating agency said.

In 2021, however, the segment's combined ratio improved to less than 100 for the first time in more than 10 years, in part due to fewer vehicles on US roads as a result of the COVID-19 pandemic, Best said.

According to the October 3, 2023, Best report, long-standing headwinds confronting commercial auto insurers including social and economic inflation "remain prevalent and impactful."

"The liability component has been more problematic than the physical damage component, which is no surprise since adverse loss reserve development, driven by social inflation, tends to be a bigger issue for liability claims, which generally have a longer tail than property damage claims," Christopher Graham, senior industry analyst, Industry Research and Analytics at A.M. Best, said in a statement. "Even with that, though, the physical damage combined ratio is deteriorating."

The report says that commercial auto insurance prices have risen steadily over the past 10 years, but those price increases haven't kept pace with inflation. In addition, as adverse development on prior-year losses has driven the segment's combined ratio higher—to 105.4 percent in 2022—inflation has caused calendar year results to worsen.

"Early results for 2023 show continued deterioration for the commercial auto line, indicating that headwinds are persisting and strengthening," Mr. Graham said.

A shortage of licensed commercial drivers, which forces companies to rely on inexperienced drivers, potentially leading to more accidents, poses additional headwinds for commercial auto insurers. The Best report suggested that this is not likely to be a short-term problem.

"Drivers are retiring faster than they can be replaced, which not only adds to the shortage but also shortens the time needed to train new drivers," David Blades, associate director, Industry Research and Analytics at A.M. Best, said in the statement. "Inexperienced drivers could be more prone to accidents, which would worsen accident frequency trends."

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