The U.S. commercial auto insurance has struggled to achieve underwriting profitability for years, even before the inflationary conditions that have been affecting property and casualty insurance lines more recently. This trend has been accompanied by steady growth in net written premiums (NWP).
According to the Insurance Information Institute, an affiliate of The Institutes, the declines in underwriting profitability, despite relatively steady growth in premiums written, have been driven by several causes. Beinsure analyzed the report and highlighted the key points.
One is the fact that vehicles – both commercial vehicles and personal vehicles they collide with – have become increasingly expensive to repair, thanks to new materials and increased reliance on sensors and computer systems designed to make driving more comfortable and safer.
All the technology that’s available now and all the things that go into these vehicles” are more expensive than they used to be. A passenger car bumper that was once a high three-figure dollar cost to repair may now be mid-four figures. These material costs are exacerbated by rising labor and training costs (see US Auto Insurance Rates by States).
Strong premium growth and slowing claims cost inflation contributed to a combined ratio of 94%. Higher investment yields also provided a boost.
The P&C insurance industry’s return on equity (ROE) reached 14%, with full-year forecasts projecting an ROE of 9.5% in 2024 and 10% in 2025, along with premium growth of 8% and 5%, respectively.
Personal lines continue to drive growth and profitability improvements, while competition is reemerging in personal auto. However, growth in commercial lines, including property, is slowing (see TOP 100 P&C Insurers in the U.S.).
Distracted Driving and Rising Costs
A survey by The Travelers pinpointed distracted driving as a significant factor in traffic accidents, with technology emerging as a primary distraction. Other causes included drowsiness, emotional stress, and work-related pressures.
The National Highway Traffic Safety Administration reports that from 2013 to 2022, over 32,000 people died in crashes involving distracted driving.
Commercial Auto Net Underwriting Profit
The U.S. commercial auto insurance segment to remain unprofitable in 2024, with rising claims severity from inflation and burgeoning litigation risk despite continued price increases and underwriting changes.
Commercial Auto NWP and Premium Growth
Fitch Ratings expects the segment combined ratio (CR) to exceed 106% in 2023, as the YTD direct loss ratio in commercial auto liability increased to 72% in 2023 from 69% in 2022, with further potential for recognition of reserve deficiencies (see 6 Major Types of Car Insurance in U.S.).
The U.S. commercial auto insurance line has regularly underperformed, posting a CR above 100% in 11 of the last 12 years.
Pandemic-related economic lockdowns led to a 25% decline in reported commercial auto liability claims in accident year and associated declines in judicial activity and reserve development led to a rare segment underwriting profit (99% CR).
TOP 10 U.S. Commercial Auto Insurers
| Company | Premiums, $ bn | Market Share, % |
| 1. Progressive | 8.8 | 17.1% |
| 2. Travelers | 3.1 | 6.0% |
| 3. Liberty Mutual | 2.2 | 4.2% |
| 4. National Indemnity | 1.9 | 3.7% |
| 5. Auto-Owners | 1.6 | 3.1% |
| 6. Nationwide | 1.6 | 3.1% |
| 7. Old Republic | 1.4 | 2.6% |
| 8. W.R. Berkley Corp. | 1.2 | 2.3% |
| 9. State Farm | 1.2 | 2.2% |
| 10. Allstate | 1.0 | 2.0% |
| Rest of industry | 27.7 | 53.7% |
| P&C Industry | 51.7 | 100.0% |
Among various distractions, NHTSA identifies cell phone use—especially texting—as particularly dangerous due to the combination of visual, manual, and cognitive distractions.
The National Safety Council (NSC) adds context to these findings, noting a 22% rise in preventable traffic crash deaths in 2022 compared to pre-pandemic levels. NHTSA data from that year attributes 8% of fatal crashes to distracted driving.
Cambridge Mobile Telematics (CMT) reports a 20% surge in distracted driving from February 2020 to February 2024, coinciding with the post-pandemic rebound in traffic. CMT estimates that every 10% increase in distracted driving results in over 420 fatalities and an economic loss of $4 bn each year.
Litigation & Rising Costs in Commercial Auto Insurance
Increasing bodily injury claims and fatalities are leading to greater attorney involvement, driving up settlement costs and litigation duration. Nationally, the commercial auto defense and cost-containment expense (DCCE) ratio—measuring litigation impact on insurers—has nearly tripled over the past decade, signaling a rising financial strain on the insurance industry.
According to Triple-I study, attorney representation in commercial vehicle claims drove a 21% increase in total loss costs in 2019, compared with 2015, as well as a 2.9% increase in allocated loss adjustment expenses, and a 19% increase in total loss and ALAE.
The estimates for 2014 through 2019 occur in a period of stable economic inflation, providing strong evidence that the inflationary total for those years, $21 bn, 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.
Commercial Auto Liability: Impact of Increasing Inflation
Commercial trucking is particularly affected by litigation trends. From 2010 to 2018, the average size of commercial trucking verdict awards grew 33% annually, as overall inflation grew 1.% and healthcare costs grew 2.9%, according to a study by the American Transportation Research Institute.
Technology can play a dual role in insurance
Technology can play a dual role, both contributing to challenges for fleet owners, drivers, and insurers, and offering solutions.
Verizon survey of commercial fleet managers highlights video technology’s impact, with 77% of respondents reporting reductions in false claims, 48% seeing lowered accident costs, and 44% noting decreased insurance expenses.
Asset-tracking technology also improved security, leading to reduced insurance costs for 34% of respondents.
The expanded use of sensors and insurance telematics in both commercial and personal vehicles holds promise for accident prevention and enhancing driver behavior through actionable feedback. Telematics data allows insurers to align premiums more precisely with actual driving patterns.
With real-time data, insurers can develop more accurate risk profiles based on current driving data, leading to more efficient pricing strategies that reflect true risk levels.
Additionally, insurance telematics can significantly enhance claim management processes. In the event of an accident, telematics devices can automatically notify insurers and provide them with detailed information about the crash, such as the severity of the impact and the likely damages (see Types of Telematics Insurance). This immediate response not only speeds up the claims process but also reduces the potential for fraud, as insurers have precise data to verify claims.
According to an Insurance Research Council survey, 45% of drivers reported safety improvements in their driving after joining a telematics program, with another 35% noting smaller adjustments. The pandemic further increased policyholders’ openness to behavior monitoring in exchange for potential insurance discounts.
Commercial auto insurers underwriting profits
While commercial auto insurers continue to struggle to achieve underwriting profits, there are positive signs as reflected in their net combined ratios.
The combined ratio is calculated by dividing the sum of claim-related losses and expenses by earned premium. A combined ratio under 100 indicates a profit. A ratio above 100 indicates a loss.
2024 net combined ratio for commercial auto insurance has improved slightly since 2023, and further improvement is expected over the next two years.
Commercial Auto Net Combined Ratio and Change in NWP
These projected improvements are based on an expectation of continued premium growth – due more to aggressive premium rate increase than to increased exposure – as the rate of insured losses levels off.
U.S. P&C insurance sector outlook
| Metric | 2023 | 2024F | 2025F |
| Premiums, Change | 10.1% | 8.0% | 5.0% |
| Combined Ratio | 102.3% | 98.5% | 98.5% |
| Underwriting Result | -3.1% | 1.5% | 1.5% |
| Investment Yield | 3.5% | 3.7% | 4.1% |
| Return on Equity | 3.4% | 9.5% | 10.0% |
Sources: S&P Global, statutory filings; Estimates and forecasts by Swiss Re Institute
Fitch Ratings notes that the U.S. P&C market is positioned for a return to underwriting profitability and significant capital returns for the full year, although results may not match levels due to uncertainties related to natural catastrophe exposures and loss reserve developments.
P&C insurance earnings will materially improve in 2024 amid recovery in personal lines results and only modest deterioration in commercial lines
The market faces challenges in sustaining commercial lines pricing to keep pace with ongoing loss-cost inflation and heightened litigation risks in several segments.
FAQ
U.S. commercial auto insurance has faced challenges in achieving underwriting profitability due to rising vehicle repair costs, driven by advanced materials, sensors, and computer systems. Increased labor and training expenses have added further strain.
While premiums have grown steadily, a primary driver is the higher cost of claims and repairs, not necessarily a rise in exposure. Aggressive rate increases aim to counterbalance loss-cost inflation.
Distracted driving, particularly due to cell phone use, has led to a rise in traffic accidents. Data from the NHTSA shows over 32,000 fatalities related to distracted driving from 2013 to 2022, with additional economic costs of $4 bn per year from increased distracted driving.
Increasing attorney involvement and growing settlement amounts have raised overall claim costs. Since 2010, commercial trucking verdicts have grown 33% annually, contributing to “social inflation” in claims and settlement processes.
Video and telematics technology can reduce false claims, improve driver behavior, and help align premiums with actual driving patterns. Fleet managers report reductions in claims and insurance costs, and policyholders have shown openness to telematics for potential discounts.
A combined ratio below 100% suggests profitability, while one above 100% indicates losses. Recent improvements in the combined ratio suggest a slight recovery, with projections of further gains over the next two years due to premium growth.
The U.S. P&C sector shows a positive outlook with a projected combined ratio of 98.5% in 2024, supported by recovery in personal lines and only minor deterioration in commercial lines. However, challenges include sustaining pricing and managing risks from natural catastrophes and loss reserves.
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AUTHOR: Michel Léonard, Ph.D., CBE, chief economist and data scientist, Triple-I, Chris Demetroulis – Managing Director for Transportation at Arthur J. Gallagher & Co
