The U.S. commercial auto insurance market turned in results for 2020 that were the best it has seen in several years, although it still did not achieve an underwriting profit.
Despite several years of price increases and corrective underwriting actions, the sector’s combined ratio for commercial auto has not been below 100.0 since 2010, according to Best’s Market report, “Near-Term Profitability Still Elusive for U.S. Commercial Auto Writers.”
In 2020, the substantial drop in driving due to the COVID-19 pandemic led to better results, with an eight-percentage-point decline in the loss and loss adjustment expense ratio, to 73.5 from 81.5 in 2019. The segment’s combined ratio for 2020 also improved considerably in 2020, to 101.8 from 109.3 in 2019 and 108.0 in 2018.
Although the line incurred a net underwriting loss, the loss was much smaller than the losses in each of the preceding five years, according to the report.
The report noted that the results improved despite some commercial auto insurers reducing premiums or paying out higher policyholder dividends.
The report cites data from the Council of Insurance Agents and Brokers indicating commercial auto underwriters have increased pricing since the third quarter of 2011, yet AM Best notes that since then they have incurred more than $22 billion in underwriting losses.
Other findings from the report:
- Progressive continues to hold first place in commercial auto market share with 12.7%, about twice number two writer, Travelers. They are the only two carriers with more than a 5% market share.
- Eight of the top 10 insurers generated combined ratios exceeding 100.0, indicating their unprofitable commercial auto underwriting efforts.
- Progressive, Chubb, Cincinnati, Erie Insurance Group, and Tokio Marine managed to turn in commercial auto line results that outperformed their overall property/casualty combined ratios.
“With the right combination of pricing, underwriting focus, and claims handling, underwriting this line profitably is possible,” the report says.
The authors advise agents and brokers that they will likely have to “contend with less capacity and more restrictive policy terms” and they expect that insured firms with large fleets or poor loss histories are likely to see more significant rate increases and updated policy terms.
Despite the improvement in 2020 results, AM Best said it still maintains a negative market segment outlook on the commercial auto segment, due to a decade of unprofitable underwriting results, the impact of social inflation on claim costs and ongoing adverse development of prior accident-year loss reserves. The challenges also include a shortage of experienced drivers, rising vehicle repair costs for electronics and other technologies, and the growth of distracted driving, AM Best reports.
From 2010-2019, commercial auto direct premiums rose, but pricing did not keep up with increasing loss costs and risk factors, leading to unprofitable results. Direct premiums written (DPW) for the commercial auto line increased by 23% year over year as of June 30, 2021, and rate increases near or above 10% continue to play a meaningful part in premium growth. According to AM Best, the increase in premium volume helped improve the line’s direct loss ratio for the first half of 2021 to 64.3 from 67.9 in the first six months of 2020.
However, AM Best predicts that with traffic patterns returning to pre-COVID-19 pandemic levels, claims frequency will likely return to previous levels as well, putting into question “whether the improved results for 2020 and for the first half of 2021 will be sustainable in terms of insurer pricing and underwriting actions or primarily reflect anomalous market and economic conditions.”
Source: AM Best
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