AM Best: Commercial Auto Liability Continues to Impact U.S. Insurance Industry with Mounting Losses

What's Happening?

The U.S. property/casualty insurance industry is facing significant challenges due to ongoing losses in the commercial auto segment. According to AM Best, commercial auto has posted underwriting losses for 14 consecutive years, accumulating over $10 billion in net losses in the past two years alone. The report highlights that while commercial auto physical damage has been profitable, commercial auto liability remains a major issue, with a combined ratio of 113 in 2024. Inflation and rising costs are exacerbating the situation, leading to longer claim resolution times and potential nuclear verdicts. AM Best warns that the divergence between physical damage and liability could further harm insurers, as insureds may opt for higher deductibles or forego physical damage coverage altogether.

Why It's Important?

The persistent losses in commercial auto liability have significant implications for the U.S. insurance industry. Insurers may need to reconsider their strategies, potentially impacting their willingness to offer commercial auto coverage. This could lead to higher premiums or reduced availability of coverage for businesses relying on commercial vehicles. The under-reserved liability segment, estimated at $4 billion to $5 billion, poses a risk of further financial strain. The situation underscores the need for insurers to adopt more efficient technologies and strategies to mitigate losses and improve profitability in the commercial auto sector.

What's Next?

Insurers may need to reassess their approach to commercial auto liability, possibly leading to strategic shifts in coverage offerings. The industry could see increased adoption of technology to enhance efficiency and reduce costs. Stakeholders, including businesses and policymakers, may need to engage in discussions to address the challenges posed by commercial auto liability and explore solutions to stabilize the market.