Commercial Auto Insurers Suffer Biggest Losses in Decade

In a new report from AM Best, the commercial auto insurance sector’s underwriting losses sunk to $4 billion last year, representing the worst loss in 10 years. This major hit to the market represents a continuation of a decade-long trend of worsening underwriting results.

The report, titled “U.S. Commercial Auto Writers: Profitability Remains Elusive”, highlights a 1.4-percent deterioration in 2019 compared to 2018 due to incurred losses and loss adjustment expenses. AM Best confirms that 2019 marked the eighth consecutive year in which Commercial auto insurers’ combined ratio was materially higher than that of either commercial lines or the P/C sector altogether.

Going Nowhere Fast

Growth of Loss Adjustment Expenses (LAE) — the cost of investigating and adjusting losses— has outpaced earned premium growth, according to the report, despite double-digit, year-over-year increases in earned premiums. LAE continues to grow as claims are going through costly litigation from instances of litigation financing and social inflation.

However, the spread of COVID-19 in the United States may give commercial auto insurance policy providers some room to breathe from the sector’s high frequency and severity levels. This is due to reduced traffic on the roads from shelter-in-place requirements in places like Los Angeles, which reported the cleanest air it’s had since 1995.

But even though accident frequency has declined, severity could potentially continue to rise because of vehicles colliding at higher speeds.

Cutting Their Losses

Insurers in the commercial auto insurance industry have made concerted efforts to improve price adequacy, according to AM Best, pushing for rate increases for many years. Increasingly aggressive rate actions continued through last year, resulting in the first double-digit boost in premiums of more than 10 percent throughout all accounts in Q4 of 2019.

To get the sector’s line to return to underwriting profits, commercial auto insurance companies need to focus on their initial assessments of costs per claim, the report said, given that commercial auto repair costs continue to rise. And when it comes to insurance tech, or insurtech, a hotly rising segment in the industry, insurers should lean into things like telematics to enhance their rate and update their claims-settling practices.

About Genesee General

At Genesee, we strive to provide quality insurance solutions for the Commercial E & S sector, and we can help with your small, middle market and large excess and umbrella accounts. Our longstanding expertise has allowed us to successfully serve your clients for over three decades. Our specialized products include coverages for Transportation, Garage, P & C, Professional, Brokerage Property, Specialty Programs and many more. For more information about our products, we invite you to contact us today at (800) 282-8755.