A new Best’s Market Segment Report, titled, “U.S. Commercial Auto Writers: Profitability Remains Elusive,” states that the commercial automobile insurance line of business has not generated a combined ratio under 100 since 2010. The segment’s combined ratio deteriorated by 1.4 percentage points in 2019 to 109.4, driven by a nearly 2.0 percentage-point increase in the incurred loss & loss adjustment expense (LAE) ratio. Despite double-digit, year-over-year increases in earned premiums, the growth in incurred losses and LAE has outpaced earned premium growth. Moreover, LAE continues to grow as claims are going through costlier litigation from social inflation and instances of litigation financing.
According to the report, the COVID-19 pandemic may give the commercial automobile writers some much-needed breathing room for the segment’s high frequency and severity levels. Reduced road traffic from shelter-in-place requirements has resulted in fewer automobile accidents; however, although accident frequency may decline, severity potentially could rise because of vehicles colliding at higher speeds. Under typical traffic conditions, the presence of other vehicles on the road results in all vehicles driving at slower speeds. Ride-share claims may decline as well, although claims from meal or grocery delivery services could increase.
Automobile insurers have made concerted efforts to raise rates and improve price adequacy, and have been pushing for rate increases for several years. For the line to return to profitability, according to the report, companies will need to do a better job with their initial assessments of costs per claim, given that automobile repair costs continue to rise, as well as severity, owing to more frequent attorney involvement in claims. Insurers also must embrace technologies like telematics, and enhancing their rate, underwriting and claims-settling practices. AM Best, which maintains a negative market segment outlook on the commercial automobile insurance segment, will continue to monitor the performance of the commercial automobile insurers as shelter-in-place restrictions relax.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=298738.
To view a video discussion on this report with Sridhar Manyem, director, industry research and analytics, and Samuel Hanig, senior industry analyst, both of AM Best, please go to http://www.ambest.com/v.asp?v=commercialauto720.