Best’s Market Segment Report: U.S. Commercial Automobile Sector Struggling to Keep Pace

OLDWICK, N.J.--(BUSINESS WIRE)-- The U.S. commercial automobile segment continues to have a negative impact on the property/casualty industry’s bottom-line results and showed further deterioration through the first three quarters of 2017, according to a new A.M. Best report.

The Best’s Market Segment Report, titled, “Commercial Automobile Sector Struggling to Keep Pace,” states that commercial automobile insurers have tried to address unfavorable results by enhancing underwriting measures and aggressively raising rates to improve rate adequacy, but the difficulties of underwriting commercial automobile are being compounded by rising claims frequency as a result of more commercial vehicles being on the road amid a rebounding economy. The direct loss ratio of the top 15 commercial auto liability insurers through third-quarter 2017 deteriorated to 69.4 from 66.5 during the same period in the previous year.

According to the report, average rates increased by 5.4%, 6.1% and 7.3% in the first three quarters of 2017—the largest quarterly consecutive increases since rate hikes began in third-quarter 2011—as insurers worked to offset the rise in losses and improve profitability. However, whether the increases will be enough to reverse the trend in underwriting losses, remains to be seen.

Adverse reserve development also has contributed to consistent increases in net underwriting losses over the past six years, as commercial automobile underwriting losses grew to slightly more than $2.9 billion in 2016 from $744.8 million in 2011.

Despite the headwinds commercial automobile insurers are facing, the lead underwriters are well capitalized and have strong balance sheets. Direct premiums written continues to grow, with the top writers essentially remaining the same year after year. Through third-quarter 2017, the top 15 writers by DPW had a 51.6% market share, an increase of 7.6% year over year.

The use of more detail-focused underwriting and continued rate increases could help mitigate expected increases in frequency and severity amid U.S. economic growth. However, A.M. Best believes there will be more pain, owing to factors such as distracted driving and attorney involvement, before insurers realize any long-term gains from focused underwriting and pricing efforts.

To access a copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=269762.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Source: A.M. Best