Auto insurance premiums continue to rise due to rising labor and material prices, coupled with natural disasters, forcing insurance companies to face huge losses.
As Triple-I previously noted in its January report, Insurance Economics and Underwriting Forecasts: Milliman principal consulting actuary Jason B. Kurtz, FCAS, MAAA, said, “Commercial auto underwriting losses continue and are expected to continue through 2023 The net combined ratio was 110.2, the highest since 2017. The combined ratio is a measure of underwriting profitability. A score below 100 represents a profit, and a score above 100 represents a loss.
Insurers are now having to raise rates to cope with losses that are expected to continue to rise.
“No one wants to be saddled with a high bill,” said Triple-I CEO Sean Kevelighan. However, he added that companies “need to price insurance based on the existing level of risk”.
While inflation is partly responsible for rising insurance premiums, natural disasters are also contributing factors, and not just in traditional disaster-prone areas like Florida and California.
As the entire P&I industry struggles with severe convective storms, hurricanes and other natural disasters, commercial autos are feeling these losses as well. In fact, there were more than two dozen storms in the United States in 2023, each with losses exceeding a billion dollars. These include significant lightning, hail and damaging winds in many areas of the United States.
“While many of these storms won’t make national headlines, they are local,” said Tim Zawacki, principal insurance research analyst at S&P Global Market Intelligence. The losses are often very heavy. “I think the breadth of where these storms occur is of considerable concern to the industry.”
While disaster and economic inflation continue to ravage the commercial auto industry, social inflation is also raging. As Triple-I previously reported, “social inflation” – where inflation exceeds the rate of economic inflation – is also largely responsible for increases in commercial auto premiums.
Triple-I found that “growing inflation increased losses by $35 billion to $44 billion, or 19% to 24%, from 2013 to 2022. The pandemic brought significant changes to commercial auto liability insurance, While reducing the frequency of claims, the severity of claims has increased significantly”.
The increase in claim severity is due at least in part to changes in driving patterns since the pandemic, including distracted driving, which is behavior such as using a cell phone while driving. These issues, listed in Triple-I’s issue brief, “Distracted Driving: Risk Profile,” are undoubtedly one of the reasons why commercial auto insurance premiums are rising.
In fact, rising car insurance premiums are the result of a combination of issues. While natural disasters are beyond the control of insurance providers and their policyholders, other factors must be addressed to stabilize the cost of this coverage. These include telematics and usage-based insurance, which have become increasingly accepted since the pandemic.
Nonetheless, insurers, policyholders and policymakers still have a responsibility to create a more sustainable motor insurance market that collectively addresses the challenges of climate risks and dangerous driving behaviours.