The U.S. commercial automobile insurance segment's underwriting losses deepened to $4.0 billion in 2019, the segment's worst loss in 10 years and a continuation of a decade-long trend of worsening underwriting results, according to a new AM Best report.
Indeed, the U.S. commercial automobile insurance line of business has not generated a combined ratio under 100 since 2010, said the report, titled, "U.S. Commercial Auto Writers: Profitability Remains Elusive." (Combined ratios above 100% indicate an underwriting loss).
The segment's combined ratio deteriorated by 1.4 percentage points in 2019 to 109.4, driven by a nearly 2.0 percentage-point increase in incurred losses and loss adjustment expense (LAE) ratio, the report continued.
AM Best confirmed that calendar year 2019 marked the eighth consecutive year in which the commercial auto line's combined ratio was materially higher than that of either the commercial lines or the P/C industry in its entirety.
Despite double-digit, year-over-year increases in earned premiums, the growth in incurred losses and LAE has outpaced earned premium growth, the report said, noting that LAE continues to grow as claims are going through costlier litigation from social inflation and instances of litigation financing. However, the COVID-19 pandemic may give commercial automobile writers some breathing space from the segment's high frequency and severity levels, the report said.
"Reduced road traffic from shelter-in-place requirements has resulted in fewer automobile accidents; however, although accident frequency may decline, severity potentially could rise because of vehicles colliding at higher speeds," it added.
While ride-share claims may decline, claims from meal or grocery delivery services could increase as a result of the lockdown, AM Best added.
The report said that auto insurers have made concerted efforts to improve price adequacy, pushing for rate increases for the past several years. "Increasingly aggressive rate actions continued through 2019, with the first double-digit increase in premiums of 10.5% across all accounts in the fourth quarter."
For the line to return to underwriting profits, AM Best said, "companies will need to do a better job with their initial assessments of costs per claim, given that automobile repair costs continue to rise, as well as severity, owing to more frequent attorney involvement in claims."
Insurers also must embrace technologies like telematics and enhance their rate, underwriting and claims-settling practices, said the ratings agency. (Editor's note: telematics help improve driver safety.)
As a result of these trends, AM Best maintains a negative market segment outlook on the commercial automobile insurance segment.