AM Best: Trouble Around the Bend for Commercial Auto Insurers After Good 2021?

For the first time in many years the commercial auto insurance segment enjoyed a combined ratio below 100 in 2021, but increased claim frequency and severity in 2022 point to a U-turn in financial results.

According to AM Best, costs related to social inflation, nuclear verdicts, higher repair costs, and distracted driving are likely outpacing recent rate increases despite insurers’ efforts to achieve adequate rates and maintain pricing discipline.

“Ten years of consistent average rate/pricing increases resulted in marked improvement in 2020, followed by an additional, smaller improvement in 2021,” said the insurance industry rating agency. “Premiums are still increasing thus far in 2022. However, these increases are less than in prior years, barely keep up with headline inflation, and are less than severity in recent years.”

Every year over the last decade, reserves have needed strengthening but AM Best said this improved the past two years, which may be a reflection of rate-increase and underwriting initiatives. In 2020 and 2021, loss development on old claims surpassed the underwriting loss but new business generated a profit. However, miles traveled in 2021 remained at low, pre-pandemic levels, suggesting improvements may have been due to reduced travel and exposures to claims. Despite the drop in miles driven, vehicle fatalities have increased since the pandemic – an unfortunate trend that continued into 2022.

“Whether 2021 was just a favorable blip or a sign of what’s to come remain uncertain,” AM Best said. “And whether the first half of 2022 was merely an adjustment period as more people returned to pre-pandemic routines, or whether it represents a true return to the loss levels of the 2010s, also remain uncertain.”

Social inflation continues to impact commercial auto “more than any other line over the past decade,” said AM Best, and reserve strengthening is an indication that insurers have not caught up to judicial trends.

Looking at the line’s top insurers, Progressive Insurance grew direct premiums written by 49% in 2021 and holds 16% of the entire commercial auto market. Progressive has also managed to record a profitable combined ratio of 90.5 or better each of the last five years.