The marketplace for commercial auto and excess insurance for trucking companies and businesses with heavy fleet exposures has been hardening rapidly over the past two to three years. Unfortunately, for companies with those exposures, the expectation is that there will be little relief in the coming months.
Challenges in the Commercial Auto Insurance Market
Average commercial auto increases averaged just shy of 11% across all sizes of risks for the second quarter of 2020, which marked the thirty-five consecutive quarters of rate increases on that insurance coverage line. In spite of those steady increases, the industry results in commercial auto has seen little improvement over that time span.
Impact of External Factors on Commercial Auto & Excess Insurance
The combined ratio, which is a measure of insurance company profitability, moved into an unprofitable status in 201. In spite of continued rate increases, it has remained at unprofitable levels for the past decade. The COVID-19 pandemic brought new issues into the fold of the marketplace. With large portions of the country under stay-at-home orders, the frequency of auto liability claims dropped significantly. However, the benefit of that decline was somewhat muted by premium returns to companies that were shut down during that timeframe.
Surge in Rates and Concerns in the Excess Insurance Market
There is additional concern that a spike in the frequency and severity of claims dollars might be coming. The expected increase in auto usage and road congestion due to concerns with flying, buses, subways, and other forms of public transportation as states reopen drives the frequency concerns. Impacts that are occurring at higher rates of speed in areas of the country that have not reopened are leading to concerns around severity. It will take time to determine the true impact of these items on the industry, but given the results in the commercial auto segment over the past decade, expectations are that the rate increases will continue.
We see a similar theme in the excess or umbrella marketplace where rates have sharply increased over the past few years. In the second quarter of 2020, commercial umbrella rates increased 20%. This increase marked the highest of any line of coverage in the industry during that time, and marked the first time since 9/11 that a single line of business increased by 20% or more in a single quarter.
Evolving Dynamics Leading to Shifts in Excess Insurance Landscape
Factors such as litigation financing, distracted driving, and social inflation have driven the size of commercial auto claims exponentially higher over the past years. These factors have led to a dramatic increase in the average size of claim, not only for the verdicts in litigated claims, but also for the smaller claims settled out of court. Another by-product of these issues is that many insurance companies are no longer writing excess policies or are changing the amount of insurance they will offer to an individual insured. The increased costs of insurance and lack of capacity in the marketplace are leading companies to purchase less insurance in an environment where the need for larger limits is extremely high.
For an in-depth market report of the commercial property/casualty space, reference the CIAB Q2 Market Index.