Commercial auto results improve, forecast cloudy: Fitch
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Commercial auto sector results improved in 2020, but price increases for the segment are slowing and severity trends could potentially worsen, according to a report Wednesday from Fitch Ratings Inc.
Underwriting results for the commercial auto sector improved in 2020 with a combined ratio of 101.6% for 2020, an improvement of 7.8 points from the 109.4% posted in 2019. The segment’s combined ratio averaged approximately 110% from 2015 to 2019.
Rates increases are expected to continue through 2021, but insurer and broker feedback indicate smaller hikes and diminished momentum after several years of double-digit increases. Information from the Council of Insurance Agents & Brokers’ Commercial Property/Casualty Index Survey indicates that commercial auto renewal rates have increased each quarter since third-quarter 2011.
Claims frequency declined amid the pandemic slowdown, but severity increases hurt the sector.
“Regular increases in claims severity are a key factor behind chronic underperformance issues in commercial auto for the past decade. Higher costs from rising litigation activity and larger jury verdicts and settlement costs are likely to weigh on profits in the future,” Fitch said.
The decline in claims frequency, however, was “unprecedented,” Fitch said, with data from Schedule P of insurers statutory filings showing a 26% accident-year 2020 decline in total reported claims.
Rising jury verdicts are an acute challenge. “…research from organizations, including the American Transportation Research Institute, point to substantial growth in the number of jury verdicts for transportation claims in excess of both $1 million and $10 million as a primary source of commercial auto loss volatility,” Fitch said.
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