The US commercial auto insurance segment reported a net loss of $5 billion in 2023, with results in the first half of 2024 indicating further deterioration, according to a report from AM Best.
Despite ongoing underwriting initiatives and consistent rate increases over the past decade, profitability in commercial auto remains elusive compared to other property and casualty (P/C) insurance lines.
The report identifies distracted driving, a shortage of experienced commercial drivers, and social inflation as key factors driving higher loss frequency and severity. The commercial auto sector has produced underwriting losses every year from 2013 to 2023, making it the weakest P/C line for over a decade.
AM Best highlighted that recent deterioration was partly due to an artificial improvement in 2020 and 2021, when fewer vehicles were on the road during the COVID-19 pandemic.
AM Best associate director David Blades stated that the segment’s negative outlook, issued in March 2024, reflects these persistent challenges. Loss severity has been exacerbated by rising repair costs for newer vehicles equipped with advanced technologies, as well as increased liability costs.
Christopher Graham, senior industry analyst at AM Best, highlighted the significant contributors.
“Social inflation, including the impact of nuclear verdicts, has been a large contributor to increased loss severity,” he said.
The report also notes that physical damage coverage has remained marginally profitable since 2018, while liability coverage continues to drive underwriting losses. In 2023, adverse reserve development for prior accident year losses totaled more than $3 billion, the highest figure in the past decade.
The average loss per liability claim has more than doubled since 2014, outpacing economic inflation, which rose by 30.6% during the same period, according to the Consumer Price Index.
Distracted driving has become a growing concern, with advancements in mobile technology contributing to increased accident rates. The National Highway Traffic Safety Administration reported that in 2022, 8% of all crashes and 11% of police-reported accidents involved driver distraction, resulting in over 3,000 fatalities and 289,000 injuries.
Commercial drivers, including those operating trucks and vans, have not been immune to this trend, according to AM Best.
Progressive Insurance Group maintained its dominant position in the commercial auto market in 2023 with a 15.1% market share, significantly ahead of its competitors. Travelers was the only other carrier with a market share exceeding 5%.
While most top insurers reported premium growth of over 10% in 2023, driven by rate increases, underwriting losses persisted. Progressive, Old Republic, and Sentry Insurance Group were among the few carriers to achieve profitability, reporting combined ratios below 100 for 2022 and 2023.
Nationwide exited the commercial auto market in mid-2023, citing challenges in the sector. The company’s direct premiums written (DPssW) fell by nearly 25% in 2023 and continued to decline in the first half of 2024, dropping its market share to 1.3% from 5% in 2016. Despite widespread premium increases, pricing adjustments have not kept pace with escalating losses.
As of mid-2024, the commercial auto industry continues to grapple with adverse trends. Premium growth among the top 20 carriers has been driven largely by rate increases, with 11 insurers reporting premium increases exceeding 15%.
However, the gap between premium adequacy and rising loss costs remains significant. Unless the pricing increases and underwriting strategies implemented begin to show improvement in the latter half of 2024, the segment appears poised for another year of poor results.
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