The U.S. commercial auto insurance industry is grappling with significant losses, having posted over US$10 billion in net underwriting losses over the past two years, according to a new report from A.M. Best. This marks the 14th consecutive year of underwriting losses for the sector, with 2024 alone seeing a staggering $4.9 billion in losses. This is far worse than the 11-year average of $2.9 billion annually, signaling that the issue is intensifying rather than stabilizing.
The root cause of the industry’s financial woes is rising loss severity, driven by a combination of inflation, increasing replacement costs due to advancing vehicle technology, and higher labor costs for repairs. These cost pressures are not confined to the U.S.; Canadian collision repair shops are also feeling the impact, as the struggles of the U.S. market serve as a precursor to similar challenges for the entire North American collision repair industry.
Despite substantial rate hikes in an effort to offset mounting repair costs, commercial auto insurers have failed to stem the tide of losses. The gap between auto liability claims and physical damage coverage results has grown more pronounced, with liability claims accounting for the majority of the losses. This widening disparity may lead some fleet operators to opt for higher deductibles or drop physical damage coverage altogether, which could reduce the volume of work for repair shops.
“One positive development over the past decade is that insurers have successfully reduced their underwriting expense ratio by about six percentage points,” said Christopher Graham, senior industry analyst at A.M. Best. “While commercial auto insurers have not been as quick to adopt technology as their personal auto counterparts, they have made strides in improving operational efficiency.” However, these cost savings have been overshadowed by the massive increase in claims costs.
The report highlights that adverse loss development has become a “constant drain” on the commercial auto sector’s finances, worsening over time. A.M. Best’s associate director, David Blades, stressed that this is not a temporary setback but an ongoing challenge for the industry.
The commercial auto sector’s 14-year streak of losses underscores the long-term nature of the industry’s problems, suggesting that even with rate increases, structural changes in repair costs and claim severity may require a more fundamental shift in how insurers and repairers approach commercial vehicle damage.
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