Commercial auto insurance is on the road to “modest improvement” for 2021, thanks to both rising rates and a pandemic-related reduction in driving, according to a new Fitch Ratings report.

Fitch said that commercial auto insurance produced a combined ratio of 101.6 in 2020. While that’s still not ideal, it reflects the best underwriting result for the sector in a decade and is nearly 8 percentage points better than in 2019.

Why the improvement? Consecutive large renewal rate hikes helped, as did “a sharp reduction in driving activity” during the COV-19 pandemic. Because of the pandemic, commercial auto experienced a 26 percent accident year decline in total reported claims in 2020, the report noted.

Improvement should continue in 2021, Fitch said, coming close to break-even levels.

The improvement changes come after years of problems for commercial auto. Fitch points out that regular jumps in claims severity over the last decade led to “chronic underperformance issues” for the sector. Rising litigation activity and larger jury verdicts and settlement costs also hurt, and they’ll likely dampen profits in the future, Fitch said.

Better, and Yet…

Rate hikes should continue through 2021, Fitch said, but competition and insurer recognition of recent frequency benefits could moderate future price gains.

And yet, a flip side of the coronavirus could also help down the line. Workers, including insurance workforces, were largely forced to work from home during quarantines. By doing so, insurers were able to experience the benefits of investing in virtual communications and digitizing their information systems, which Fitch said pointed to future opportunities for operating efficiencies.

“Commercial auto writers can harness information technology in many areas going forward, particularly [using] telematics in risk selection and pricing, and advance modeling and analytics in claims to better manage larger cases and identify fraudulent activity,” the Fitch report noted.

More details are in Fitch’s full report: “U.S. Commercial Auto Insurance Market Update.”

Source: Fitch Ratings

Topics Auto Commercial Lines Business Insurance