The combined ratio for the U.S. commercial auto insurance sector is forecast to exceed 106% in 2023 as the segment continues to be unprofitable for the year, according to a report Thursday from Fitch Ratings Inc.

Rising claims severity from inflation and growing litigation exposure will continue to vex the commercial auto insurance market despite continued price increases and underwriting changes, Fitch said.

The U.S. commercial auto insurance business has produced a combined ratio above 100% in 11 of the last 12 years, the lone exception being 2021’s 99% as pandemic-related lockdowns resulted in a 25% decline in reported commercial auto liability claims together with associated declines in judicial activity and reserve development.

The negative effects of higher loss severity on commercial auto performance are expected to continue, driven by higher general inflation levels, supply chain and skilled mechanic labor shortages and liability costs. The average statutory closed claim payment in commercial auto liability increased by 18% in calendar-year 2022, the Fitch report said.

“More frequent attorney involvement in transportation claims and greater potential for outsized verdicts in several jurisdictions continue to exacerbate commercial auto loss costs, with insurers’ commercial auto litigation risk increasing amid the expanding presence of the litigation finance industry,” the report said.

In a separate report Thursday, The Insurance Information Institute said that increasing inflation, including both social and economic inflation, drove commercial auto liability loss and defense containment costs higher by $35 billion to $44 billion between 2013 and 2022.

“Changes in loss development patterns since 2019 can be reasonably attributed to both social inflation and increases in economic inflation, as well as the impact of the pandemic,” the Institute said.

Since 2008, replacement costs for both commercial and personal auto insurance have risen 40% more than prices overall, the Triple I report found.

In the commercial auto sector, claim severity has risen 72% since 2013, an annual growth rate of 6.2% and median increase of 6.3%. “Four of the last five years exceeded the median increase, a sign the process may be accelerating,” the report said.