The U.S. commercial auto insurance segment incurred a net loss of $5 billion in 2023, with results in the first half of 2024 showing further deterioration from the prior year period, according to a new AM Best report.

Despite targeted underwriting initiatives, and pricing that has increased steadily during the past decade to address price adequacy issues, the commercial auto insurance segment continues to lag other property and casualty (P/C) lines in profitability. The new Best’s Special Report, titled, “Different Year, Same Story: Deteriorating Commercial Auto Results,” states that frequency and severity of accidents involving commercial automobiles are being negatively affected by distracted driving and the shortage of experienced commercial drivers. Social inflation also remains a key factor with respect to the line’s adverse loss reserve development.

U.S. commercial lines performance overall has been strong, particularly in 2022 and 2023, attributable to strong underwriting performance for lines such as workers’ compensation and surety, and solid performance of other P/C lines, in addition to renewed market underwriting discipline, according to the report. However, 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 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 in the commercial auto segment has been exacerbated by the cost of components, especially in newer vehicles loaded with advancing technologies. The latest features and instrumentation require more electronics, which add to the cost of repairs when accidents occur. The average cost of physical damage claims can be problematic, but third-party liability losses are driving the deteriorating commercial auto results. “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.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=348611.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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