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OLDWICK - DECEMBER 14, 2016 03:16 PM (EST)
Results for the U.S. commercial automobile segment continue to run distinctly counter to those produced by the overall U.S. property/casualty (P/C) insurance market, and in 2015, the commercial automobile line of business recorded its worst underwriting loss than in any of the last five years, according to an A.M. Best special report.
The Best’s Special Report, titled “Deteriorating Commercial Automobile Performance Continues To Hinder Profitability of Overall Property/Casualty Market,” notes that commercial automobile results have deteriorated over the past several years, underperforming the results of the overall commercial lines market by notable margins. Underwriting losses in the commercial automobile line led to a combined ratio of 108.6 in 2015, a deterioration of 5.6 points from the 103.0 recorded in 2014.
Some of the causes of the worsening automobile results include escalating automobile claim frequency and severity, as well as the incremental (quarterly) average rate changes for commercial automobile risks. On a quarter-to-quarter basis, commercial automobile rates have increased since the third quarter of 2011; however, the increases have not kept pace with the changes negatively impacting loss frequency and severity. During the first three quarters of 2016, commercial automobile rates have increased by 3.6%, 2.4% and 3.2%, quarter-over-quarter.
In addition, commercial automobile direct incurred losses over the last three years, on a quarterly basis, have been increasing to a larger degree than direct premiums written (DPW). Percentage-wise, comparing the average direct losses over the last five quarters through the second quarter of 2016, with the direct loss in the first quarter of 2013, the average incurred loss total has increased by 39%. Looking at the same comparison, DPW produces an increase of just under 15%.
Despite the myriad challenges facing commercial automobile insurers, the leading writers of commercial automobile insurance in terms of DPW are among the largest, most well-known insurance organizations in the industry and have a track record of profitable operations. The top five commercial automobile insurers generated just below30% of the total industry DPW, and the top 25 accounted for more than 65% of industry DPW. Moreover, four of the top 10 organizations generated double-digit year-over-year DPW growth in 2015.
Nevertheless, in spite of quarterly rate increases and attempts to re-underwrite and re-price large portions of commercial automobile portfolios, this line has continued to be a loss leader for many insurers. This includes some of the larger insurers with historically favorable overall underwriting results. In order to better control and manage costs associated with providing commercial automobile insurance, insurers need to implement more effective risk management and underwriting techniques focused on both covered drivers and vehicles.
To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=256824 .
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.