U.S. Commercial Auto Insurance Sector Posts $10B Underwriting Losses in Two Years
The U.S. commercial auto insurance sector continues to exert a negative impact on the overall property and casualty (P&C) industry, having accumulated over $10 billion in net underwriting losses over the past two years. According to AM Best's latest Market Segment Report, this marks the 14th consecutive year of underwriting losses driven primarily by rising loss severity and adverse prior-year loss reserve development.
In 2024 alone, underwriting losses reached $4.9 billion, well above the average annual loss of $2.9 billion seen over the last decade. Despite these challenges, insurers have managed to reduce their underwriting expense ratios by about six percentage points over the past ten years, reflecting some operational efficiency gains. The report distinguishes notable differences in performance between commercial auto liability and physical damage coverage, where liability coverage tends to have significantly higher net loss and loss adjustment expense ratios. This discrepancy influences commercial insureds to reconsider the cost-effectiveness of physical damage coverage, often opting for higher deductibles as a cost management strategy. Key drivers behind the persistent underwriting losses include social inflation, which has notably increased claims costs through larger verdicts and increased legal involvement, adverse loss reserve developments, and insufficient pricing adjustments. While pricing has increased for 14 years consecutively, mostly in single or double digits, these hikes have not been enough to offset escalating loss costs. Social inflation contributed to more than doubling the average loss severity for liability claims from 2015 to 2024, growing over 8% annually compared to about 3% economic inflation.
Additionally, adverse loss development has consistently worsened, averaging over a seven-point drag on loss and defense cost ratios, with the industry under-reserving commercial auto liability by an estimated $4 billion to $5 billion. Some insurers are performing better than the sector average, but many leading commercial auto writers reported combined ratios exceeding 100 in 2024. The report concludes that continued losses may prompt insurers to re-evaluate their strategy of accepting commercial auto underwriting losses to secure more profitable lines such as general liability and workers’ compensation.