Commercial Auto Liability Drags Down Segment and It Could Get Worse in 2025

The commercial auto insurance sector is facing a significant crisis, with commercial auto liability leading the downturn. For over a decade, this segment has struggled with underwriting losses, and experts predict that it could get worse in 2025. According to a recent study by Conning, the commercial auto line has experienced 13 straight years of underwriting losses. This blog post will delve into the factors contributing to this decline and explore potential strategies for businesses to mitigate the impact.

Persistent Underwriting Losses

The commercial auto insurance market has been challenging for both insurers and policyholders for the past decade. Insurers have reported combined loss ratios above 100% for 12 of the past 13 years, meaning they are paying more in claims and expenses than they earn in premiums. In 2024, commercial auto premiums experienced some of the highest increases, with rates rising between 9% and 9.8% in the first two quarters. Despite these increases, the sector continues to struggle with rising claims and new risks.

Key Factors Driving the Decline

Several factors contribute to the ongoing challenges in the commercial auto liability segment:

Social Inflation and Nuclear Verdicts: Social inflation, which refers to the rising costs of insurance claims due to increased litigation, higher jury awards, and broader definitions of liability, is significantly impacting the commercial auto insurance market. The rise of “nuclear verdicts” (exceeding $10 million) and “thermonuclear” verdicts (exceeding $100 million) is fueled by the growing societal opinion that businesses can afford the cost of damages. Since 2015, social inflation and so-called nuclear verdicts have driven liability claim severity up 64%. The trucking industry is particularly vulnerable because of the serious nature of accidents, resulting in larger settlements.
Commercial Driver Shortages: The US is facing a shortage of commercial drivers, leading to higher accident rates as companies hire less-experienced drivers to fill gaps. In 2023, the U.S. had an estimated three million truck drivers, yet 60,000 positions remained unfilled in 2024. This shortage is expected to expand to 82,000 by the end of 2024 and could reach 160,000 open positions by the decade’s end.
Rising Physical Damage Costs: Advanced vehicle technology, supply chain disruptions, and general inflation have increased repair expenses and extended the time required to resolve claims. The high cost of auto repairs due to technology innovations and increased labor costs are causing carriers to underwrite physical damage deductibles.
Distracted Driving: Distracted driving has become a growing concern, with advancements in mobile technology contributing to increased accident rates. The National Highway Traffic Safety Administration reported that in 2022, 8% of all crashes and 11% of police-reported accidents involved driver distraction, resulting in over 3,000 fatalities and 289,000 injuries.
Fleet Electrification: The increasing adoption of electric vehicles (EVs) by commercial fleets introduces new risks, such as cyber vulnerabilities, battery fire hazards, and higher repair costs. Drivers moving from internal combustion engine vehicles to EVs have experienced a 14% rise in claim frequency, adding another layer of complexity for insurers as they adapt to new technologies and risk profiles.

The Impact on Businesses

The struggling commercial auto liability segment has several implications for businesses:

Higher Premiums: Businesses can expect to encounter ongoing premium hikes. Policyholders with sizeable fleets or poor loss histories may be more susceptible to double-digit rate jumps, reduced capacity, and possible coverage restrictions.
Capacity Reductions and Coverage Restrictions: Insurance carriers are reevaluating their risk tolerance and may consider restricting coverage options or withdrawing from the market, leaving policyholders exposed.
Increased Deductibles: Insurers are pushing for insureds to take increased deductibles to manage spending.
Difficulty Securing Coverage: Businesses with large fleets or high-risk profiles are finding it harder to secure affordable coverage.

Strategies for Mitigating the Impact

While the challenges in the commercial auto liability segment are significant, businesses can take steps to mitigate the impact:

Develop and Enhance Driver Safety Programs: Regularly evaluate and enhance driver safety programs tailored to your fleet’s specific needs. Establish clear safety policies and procedures, including rules around operating vehicles in dangerous weather and compliance with driving hours to reduce the risk of accidents.
Implement Employee Retention Programs: Develop and maintain programs designed to retain experienced drivers, reducing turnover and associated risk.
Establish Driver Qualification Standards: Utilize motor vehicle records (MVRs) to thoroughly vet driver experience and history.
Leverage Technology: Implement and track risk control and safety strategies like training programs for drivers, GPS tracking, and telematics. Telematics measures driver behaviors such as speed, sharp turns, and hard braking and can be a primary solution for mitigating driver-related accidents.
Monitor Fleet Management and Safety Scores: Regularly monitor fleet management and safety scores to identify areas for improvement.
Ensure Legislative Compliance: Stay up-to-date with evolving state and federal rules, especially around trucking regulations and data privacy.
Bolster Risk Management and Loss Prevention Strategies: Evaluate your current safety programs and employee training. Talk to your broker about your insurance program to ensure you have adequate coverage limits to protect against large jury awards and increased litigation costs.
Examine Loss History and Fleet Size: As you prepare to go to market, examine your loss history and fleet size. Implement and track risk control and safety strategies like training programs for drivers, GPS tracking, and telematics; highlight these enhancements to underwriters.
Consider Alternative Solutions: Work with your broker to explore creative alternative solutions to your program structure.

The Road Ahead

The commercial auto market is at a crossroads. Insurers will need to go beyond pricing adjustments and invest in predictive analytics, safety technologies, and smarter underwriting to restore profitability. By taking proactive steps to manage risk and improve safety, businesses can navigate the challenges in the commercial auto liability segment and protect their bottom line.

Is your business prepared for the continued challenges in the commercial auto liability market? Contact us today for a consultation to review your coverage and risk management strategies.