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Ratings agency A.M. Best & Co. said Tuesday that it is maintaining a negative outlook on the commercial auto insurance sector after the line’s ninth straight year with an over 100% combined ratio.
A.M. Best said in its market segment report that commercial auto “continues to face challenges on numerous fronts: nuclear verdicts, distracted driving, inadequate safety precautions by drivers, other frequency and severity challenges, or just being slow to adapt to current technology and modeling innovations already widespread in the personal auto line.”
The sector’s 2019 underwriting loss of $3.95 billion was the worst in 10 years, and the 2019 combined ratio worsened to 109.4% from 108.0% in 2018, A.M. Best data showed. The last time the sector recorded a combined ratio under 100% was 2010’s 97.8%. Net underwriting loss for 2018 was $3.25 billion.
Since 2016, the entire auto sector has seen rate increases of at least 5%, based on data from A.M. Best’s State Rate Filings.
Progressive Insurance Group is the largest commercial auto underwriter by direct premium written, having seen a 26.6% year-over-year increase to nearly $5.58 billion in direct written premium. Travelers Group was second with nearly $2.80 billion in direct premium written, up 9.1%. Liberty Mutual Insurance Cos., at nearly $1.89 billion, was up 5.0%.
The top 15 underwriters accounted for 53.6% of net premium market share in 2019, A.M. Best said.
“The combined ratios of all but one (Progressive) of the top 15 commercial auto writers [by net premium written] are worse for commercial auto than for all lines combined. Only Progressive and Allstate have combined ratios lower than 100,” A.M. Best said to illustrate the challenges the sector faces.
“Nuclear verdicts have been wreaking havoc on the profitability of the trucking industry in particular,” A.M. Best said. It defines a “nuclear verdict” as one of $5 million or higher.
A.M. Best cited the case of Countrywide RV Transport, which closed its operations in 2019.
“The company was the defendant in a civil lawsuit involving a driver who fell asleep at the wheel and killed a husband and wife. The jury awarded the children of the victims $26.6 million in a wrongful death lawsuit, after which the company had to close operations,” A.M. Best said.
In another example the ratings agency cited from 2019, Werner Enterprises was hit with a $40.5 million verdict for a 2017 accident in which the new driver of a tractor-trailer crossed four lanes of traffic and a concrete median, and struck a vehicle head on, whose driver was pronounced dead at the scene.
The Covid-19 outbreak has had some effect on trucking activities, A.M. Best noted.
The U.S. Office of Highway Policy Information stated that travel on all roads and streets in the country decreased by 18.6%, or 50.6 billion fewer vehicle miles, in March 2020 versus March 2019, “a substantial reduction in total traffic,” A.M. Best said.