Despite an underwriting loss in 2020, the U.S. commercial auto insurance market experienced results that were the best it has seen in several years across a number of key metrics, according to a new AM Best report. The results of the report were released Nov. 8.
The Best’s Market Segment Report, titled, Near-Term Profitability Still Elusive for U.S. Commercial Auto Writers, states that despite several years of price increases and corrective underwriting actions, the sector’s combined ratio for commercial auto has not been below 100.0 percent since 2010.
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 percent from 81.5 percent in 2019. This decline outstripped an increase in policyholder dividends, which rose nearly four-fold in 2020 as some commercial auto insurers reduced premiums or paid out higher dividends. Although the line incurred a net underwriting loss, it was much smaller than the losses in each of the preceding five years. The segment’s combined ratio for 2020 also improved considerably in 2020, to 101.8 percent from 109.3 percent in 2019.
However, AM Best still maintains a negative market segment outlook on the commercial auto segment, due to a decade of unprofitable underwriting results, the growing negative impact of social inflation on claim costs and ongoing adverse development of prior accident-year loss reserves.
From 2010 through 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 for the commercial auto line increased by 23 percent year over year as of June 30, 2021, and rate increases near or above 10 percent continue to play a meaningful part in premium growth. The increase in premium volume helped improve the line’s direct loss ratio for the first half of 2021 to 64.3 percent from 67.9 percent in the first six months of 2020. However, with traffic patterns returning to pre-Covid-19 pandemic levels, claims frequency will likely return to previous levels as well, which puts 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, says Best.