The U.S. insurance industry’s struggles with commercial auto insurance show no signs of easing, as first-half 2024 results reveal continued deterioration despite 13 years of consistent quarterly price hikes, according to a new AM Best report.
“While U.S. commercial lines have generally performed well, especially in 2022 and 2023, driven by strong underwriting in workers’ compensation, surety, and other lines, commercial auto has remained the weakest link,” the report states. “Since 2013, the line has produced net underwriting losses annually.”
Despite 52 consecutive quarters of rate increases, pricing for commercial auto remains insufficient. AM Best highlights that adverse loss development in 2023 exceeded $3 billion, cutting into current-year profits and adding at least six points to the aggregate loss ratio in eight of the last 10 years. Insurers are further hampered by competitive practices, such as accepting small losses on commercial auto to secure more profitable accounts.
“This strategy may no longer be sustainable as losses in the line grow,” AM Best warned.
The report also notes the divide between auto physical damage and liability results. While physical damage has remained marginally profitable since 2018, liability losses have worsened dramatically, with the average loss per claim more than doubling since 2014. Commercial auto incurred a net $5 billion loss in 2023, and 2024 appears headed for similarly poor results.
AM Best emphasizes that the problem is systemic. “The poor underwriting results in commercial auto are not isolated to a few insurers or specific years. The line’s challenges have persisted over the long term.”
Beyond pricing and underwriting, external factors compound the issue. Rising jury awards, settlements, inflation, distracted driving, and driver shortages all play a role. Distracted driving alone accounted for 8% of all crashes and 12% of injury crashes in 2022, according to the National Highway Traffic Safety Administration.
Driver shortages further strain the industry as fleet owners rely on less experienced drivers, increasing accident risk and insurance costs. “Businesses must invest in driver training to prioritize safety, as there’s no immediate resolution to the driver shortage,” AM Best advised.
With no immediate relief in sight, the second half of 2024 will test whether recent pricing increases and underwriting changes can begin reversing the decade-long trend of commercial auto losses.