The commercial auto insurance line has struggled to achieve underwriting profitability for years, even before the inflationary conditions that have been affecting property/casualty lines more recently. This trend has been accompanied by steady growth in net written premiums (NWP), according to the Insurance Information Institute (Triple-I), an affiliate of The Institutes.
In its latest Issues Brief, Commercial Auto: Trends and Insights, Triple-I noted that the declines in underwriting profitability, despite relatively steady growth in premiums written, have been driven by several causes including that vehicles – both commercial vehicles and personal vehicles they collide with – have become increasingly expensive to repair.
Litigation trends have also had an impact. Excessive injury and fatalities contribute to increased attorney involvement, which leads to higher claim-related expenses due to larger settlements and protracted litigation. Nationally, commercial auto defense and cost containment (DCC) expenses – a key measure of the impact of litigation on insurers – has nearly tripled over the past decade, the report stated.
A recent study Increasing Inflation on Auto Liability Insurance – Impact as of Year-End 2023, conducted by Triple-I and the Casualty Actuarial Society (CAS), found that between 2014 and 2023, increasing inflation drove auto liability losses and DCC up by a range of $118.9 billion to $137.2 billion, or 9.9% to 11.5% of the $1.2 trillion in net losses and DCC for the period.
The estimates for 2014 through 2019 occurred in a period of stable economic inflation, providing strong evidence that the inflationary total for those years, $21 billion, is attributable to “social inflation” – excessive inflation in claims caused by, among other factors, policyholder or plaintiff attorney practices that increase the costs and time required to settle insurance claims to the detriment of consumers.
“Increasing economic and social inflation continues to profoundly influence escalating insurance costs,” said Dale Porfilio, FCAS, MAAA, chief insurance officer at Triple-I. “This contributes to higher prices for personal auto insurance plus the goods and services consumers buy every day,” said Porfilio, a co-author of the Triple-I/CAS whitepaper.
For commercial auto liability, the increase in losses and DCC was in a range of $42.7 billion to $55.8 billion, or 20.7% to 27.0% of the total, higher than the previous study’s range of $35 billion to $44 billion. Claim frequency remains below pre-pandemic levels. Severity rose 78% from 2014 to 2023, compared to a 29% rise in the Consumer Price Index (CPI).
Commercial Auto Liability Trends
According to the study, claim severity rose 78% from 2014 to 2023, a compound annual growth rate of 6.6%. By comparison, the CPI for All Urban Consumers rose less than half as fast in that time, 29%, a compound annual inflation rate of 2.8%.
“The decrease in frequency shows that the accident rate is not contributing to the increase in commercial auto liability losses,” said Porfilio. “If anything, it is a mitigating cause. The fact that claim severity is rising faster than economic inflation indicates that insurers have faced inflationary factors that far outstrip general inflation trends.”
About Insurance Information Institute (Triple-I)
With more than 50 insurance company members — including regional, super-regional, national and global carriers — the Insurance Information Institute (Triple-I) is the #1 online source for insurance information in the U.S. The organization’s website, blog and social media channels offer a wealth of data-driven research studies, white papers, videos, articles, infographics and other resources solely dedicated to explaining insurance and enhancing knowledge.
Unlike other sources, Triple-I’s sole focus is creating and disseminating information to empower consumers. It neither lobbies nor sells insurance. Triple-I offers objective, fact-based information about insurance – information that is rooted in economic and actuarial soundness. Triple-I is affiliated with The Institutes.
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“Increasing economic and social #inflation continues to profoundly influence escalating #insurance costs." - Dale Porfilio, Chief Insurance Officer, @iiiorg
Contacts
New York Press Office: Loretta Worters, 917-208-8842, lorettaw@iii.org
