U.S. commercial auto insurers may be generating the best underwriting results for the sector in years, but the sector remains unprofitable as a whole as it confronts a number of emerging trends, according to a new AM Best report.
The line produced a collective 101.8 combined ratio in 2020. While that is unprofitable, it is the lowest combined ratio the sector has produced in about 10 years.
Underwriting improvement in the near future is threatened, however, by more distracted riving, social inflation, and rising automobile crash rates as states legalize the recreational use and retail sales of marijuana, AM Best said. Another near-term threat: rising crash severity, due to more expensive vehicle repair costs stemming from the growing use of electronics and other technologies. Drivers traveling at higher speeds due to less traffic in 2020 have also threatened improving trends, according to the report.
“Despite several years of consecutive rate increases, the substantial drop in driving due to the COVI19 pandemic finally moved the needle substantially in 2020,” the report pointed out. “Whether property/casualty insurers will successfully address the fundamental issues plaguing commercial auto so that favorable underwriting results are finally achieved once the effects of the pandemic are fully behind us remains to be seen.”
The sector has certainly made attempts to improve its bottom line. There have been years of rate hikes and other corrective underwriting actions. But as AM Best points out, the combined ratio hasn’t been below 100 since 2010.
COVID-19 ended up helping and hurting U.S. commercial auto as it reached the cusp of profitability. AM Best points out that the line’s combined ratio hovered between 108 and 111 from 2015 through 2019. With COVID-19 shutdowns, business closures and shelter-in-place rules, there were fewer miles traveled, and fewer accidents, but claim severity ticked higher because of excessive speed on sparsely occupied roads. Improved results were also countered partially by the reality of higher costs for repairs, with vehicle part shortages due to supply chain challenges.
Only two of the top 10 U.S. commercial auto insurers have net combined ratios under 100: top ranked Progressive at 84.9, and 8th ranked Chubb, at 99.8.
The full report is AM Best’s latest Market Segment Report: “Near-Term Profitability Still Elusive for US Commercial Auto Writers.”
Source: AM Best