The commercial auto insurance sector has faced challenges in achieving underwriting profitability for several years, a situation that predates the recent inflationary pressures affecting property and casualty lines. Despite steady growth in net written premiums, this line of insurance continues to struggle, as reported by the Insurance Information Institute (Triple-I), an affiliate of The Institutes.

In its latest Issues Brief titled "Commercial Auto: Trends and Insights," Triple-I highlighted that the decline in underwriting profitability is due to various factors. One significant factor is the rising cost of vehicle repairs, which affects both commercial vehicles and personal vehicles involved in collisions.

Litigation trends have also contributed to these challenges. Increased injury and fatality rates lead to more attorney involvement, resulting in higher claim-related expenses through larger settlements and prolonged litigation processes. According to the report, commercial auto defense and cost containment (DCC) expenses—a critical measure of litigation's impact on insurers—have nearly tripled over the past decade.

A study titled "Increasing Inflation on Auto Liability Insurance – Impact as of Year-End 2023," conducted by Triple-I and the Casualty Actuarial Society (CAS), revealed that between 2014 and 2023, inflation drove auto liability losses and DCC up by $118.9 billion to $137.2 billion, representing 9.9% to 11.5% of the $1.2 trillion in net losses and DCC during this period.

The study indicates that from 2014 through 2019, during a period of stable economic inflation, social inflation was responsible for $21 billion of these costs. Social inflation refers to excessive increases in claims costs driven by policyholder or plaintiff attorney practices that prolong settlement times and increase costs.

"Increasing economic and social inflation continues to profoundly influence escalating insurance costs," said Dale Porfilio, FCAS, MAAA, chief insurance officer at Triple-I. "This contributes to higher prices for personal auto insurance plus the goods and services consumers buy every day," added Porfilio, who co-authored the Triple-I/CAS whitepaper.

For commercial auto liability specifically, losses and DCC increased by $42.7 billion to $55.8 billion or 20.7% to 27% of total losses—a rise from previous estimates ranging from $35 billion to $44 billion. While claim frequency remains below pre-pandemic levels, severity rose by 78% from 2014 to 2023 compared with a Consumer Price Index (CPI) increase of only 29%.

According to the study findings, claim severity grew at a compound annual rate of 6.6%, significantly outpacing CPI growth at a rate of just 2.8%. "The decrease in frequency shows that the accident rate is not contributing to the increase in commercial auto liability losses," said Porfilio. "If anything, it is a mitigating cause." He further noted that rising claim severity indicates insurers are facing inflationary pressures beyond general economic trends.