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The commercial auto segment represents 13% of the U.S. commercial lines insurance market's net written premiums, but Fitch Ratings Inc. said Wednesday it remains challenged.
The commercial auto line, liability and physical damage coverage combined, has generated seven consecutive years of underwriting losses, with the industry statutory combined ratio rising to a 16-year high of 111.1% in 2017.
“We maintain a negative sector outlook on U.S. commercial lines overall, as market fundamentals point to several challenges hindering a return to adequate underwriting profits and returns on capital,” Fitch said in its U.S. Commercial Auto Insurance Market Update.
Inadequate pricing in the soft commercial insurance market prior to 2011 led to elevated underwriting losses, Fitch said, and more volatile loss trends have consistently plagued underwriting performance. Growing larger loss incidents and higher claims litigation costs are aggravating loss severity, the update said, particularly in larger trucking and fleet accounts.
The Council of Insurance Agents & Brokers' Commercial Market Pricing Survey indicated commercial auto premium pricing rose 7.7% in the first quarter of 2018, the highest rate increase in seven years. Written premium volume in commercial auto has expanded faster than other major commercial market segments in the last two years.
On an accident year basis, reported commercial auto loss ratios remain elevated, but have improved modestly over time, falling to 77.9% in 2017 from 80.5% in 2013. Fitch estimates the accident-year loss ratio would need to be below 70% in order to reach break-even underwriting results in commercial auto.
Fitch said that insurers are incorporating new information technology in many facets of the business to boost efficiency and improve decision-making. Insurers are increasing technology investments in numerous areas, including telematics, data analytics and predictive models to enhance pricing and risk selection and manage claims more effectively.
“Only four of the top 15 companies reported overall underwriting profitability in the last five years,” Fitch said. “However, most of the largest underwriters displayed moderate improvement in results, with 10 of the top 15 companies reporting lower commercial auto combined ratios in 2017 compared with 2016.”
Commercial insurance renewal rates edged down 1% in November as the soft market continued, but some lines, notably commercial auto, saw increases, according to the latest report from insurance exchange MarketScout.