U.S. commercial auto insurance losses have already been high for some time. They grew even worse, in 2016, hitting depths the sector hasn’t seen in 15 years.
A primary bellwether: the commercial auto combined ratio landed at 110.4 during the year, a 1.6 percent climb compared to 2015. The result reflects the worst underwriting performance for the sector since 2001, even with price increases Fitch ratings said in a new report.
As it stands now, U.S. commercial auto insurance has produced an underwriting loss for six years, after a steady stream of underwriting profits in the years before.
James Auden, a Fitch Ratings managing director, said that the same primary ingredients driving previous years’ losses are still in play.
“Despite premium rate increases in 2016, commercial auto insurance results continued to deteriorate as unfavorable claims trends promote continued high loss ratios and increased adverse reserve development,” Auden said in prepared remarks.
The report pointed out that U.S. commercial auto insurance continued to face high loss reserve deficiencies. Adverse development in 2016, for example, amounted to 8.6 percent of earned premiums, which Fitch said was “a recent high-water mark for segment reserve deficiencies.”
But U.S. commercial auto also still faces continued claims deterioration due to larger loss incidents and higher claims litigation costs. Distracted driving-related accidents and drivers without enough training and experience have also hurt.
There are some glimmers of hope, however. While other commercial insurance segments have seen premium renewal rate declines, U.S. commercial auto prices are speeding up even more than they were, due to the poor loss results, Fitch pointed out. Also, Fitch traced a slight accident year improvement, with the reported accident year loss ratio for the sector hitting 76.7 in 2016, three points better than in 2013, which was the weakest, most recent underwriting year.
Another potential bright spot: the use of data analytics and technology in commercial auto. Fitch reminds readers that data analytics and other technology improvements are invading aspects of the business including distribution, risk selection, pricing, claims management and policy administration. With time, underwriters hope that the newer technology will boost efficiency and improve underwriting.
However, the industry isn’t there yet. U.S. commercial auto insurance companies continues to be mindful of word that they dread: uncertainty. Underscoring this point, The Progressive Corp. – market share leader in the space – was the only company from the industry’s large underwriters to report a commercial auto underwriting profit in 2016, Fitch Ratings added.
“Uncertainty remains regarding the potential for further adverse reserve development in most recent underwriting periods,” the Fitch Ratings report said.
Source: Fitch Ratings