2024 More of the Same in Commercial Auto Segment After $5B Net Loss in 2023

After the U.S. commercial auto insurance segment sustained a $5 billion net loss in 2023, a new AM Best reports indicates further deterioration in the first half of 2024.

Despite targeted underwriting initiatives, including raising premiums to match the rising costs of claims, the commercial auto insurance segment continues to lag in comparison to other property/casualty lines when it comes to profitability.

In the report, “Different Year, Same Story: Deteriorating Commercial Auto Results,” AM Best said frequency and severity of accidents involving commercial automobiles are being negatively affected by distracted driving and the shortage of experienced commercial drivers.

Social inflation is also a key driver with respect to the line’s adverse loss reserve development.

With U.S. commercial lines performing well overall, particularly in 2022 and 2023, commercial auto has been the weakest P/C line for more than a decade, producing net underwriting losses every year from 2013 through 2023, the report outlined. The combined ratio for the segment was 109.2 in 2023.

“The level of deterioration in 2022 and 2023 was notable, although it was due partly to the artificial improvement in results in the prior two years, owing to fewer private passenger and commercial vehicles on the road because of the COVID-19 pandemic,” said David Blades, associate director, AM Best. “This is reflected in our negative outlook for the segment, which we issued in March 2024.”

Loss severity has been exacerbated by the cost of components, especially in newer vehicles containing advanced technologies. The latest features and instrumentation require more electronics, which add to the cost of repairs when accidents occur, AM Best noted.

The average cost of physical damage claims can be problematic, but third-party liability losses are driving the deteriorating commercial auto results the report noted.

“Social inflation, including the impact of nuclear verdicts, has been a large contributor to increased loss severity,” said Christopher Graham, senior industry analyst, Industry Research and Analytics, AM Best.

Progressive continues to lead its peers in commercial auto market share by a hefty margin.