The commercial auto market remains in a state of flux, as exits from the space in the past year have not impacted overall capacity in a meaningful way and auto liability continues to be a pain point, according to sources canvassed by this publication.
Filling that void are existing players that have incrementally taken on more business, as well as new MGAs and InsurTechs drawn to the strong pricing environment.
Sources noted that no established company has taken up the lion’s share of capacity, but rather that take-up has been distributed evenly among existing players.
While prices deviate per account, rate increases for standard business are round 15%-20%, slightly above last year’s 10%-15%, according to sources.
Despite elevated rates, the influx of new capital into commercial auto has slowed, sources said.
In July 2023, Nationwide announced it was pulling out of the E&S business. Newer carriers that withdrew from the market this year are InsurTech Koffie Insurance and Mohave, a trucking program that wrote on Chubb and Harco paper.
Consequently, some sources said that there is slightly less capacity in commercial auto now than there was a year ago. Still, this hasn’t been enough to move the needle in a line of business that has been largely unprofitable for a decade.
In a February report, ratings agency AM Best noted that over that time commercial auto and other casualty lines have been hit by social inflation, as increased access to information and negative public sentiment towards large firms have shifted societal norms.
At last year’s Wholesale & Specialty Insurance Association conference, Cover Whale CEO Dan Abrahamsen said the commercial auto space overall is seeing loss ratios of around 70%, while the trucking class has a loss ratio of over 80% given its increased exposure.
In terms of volume, Nationwide’s exit from commercial auto E&S was felt by the market, but the company did not pursue a renewal rights transaction, and its businesses were put up for grabs in the market and mostly replaced within months, sources said.
According to Mark Gallagher, national transportation practice leader at RPS, there is still “enough competition out there that offers alternatives to clients" to prevent rate from soaring.
Auto liability continues to drive the increases, while physical damage is seeing rate declines in certain cases due to rampant competition. In trucking, where the post-Covid decline in truckers has resulted in an oversupply of insurance, rate increases are in single digits for good accounts.
Sources agree that rates are not where they should be considering litigation costs.
A study last year by the US Chamber of Commerce revealed that the average award for 154 verdicts and settlements involving truck accidents between June 2020 and April 2023 was $27.5mn. The average award for plaintiffs’ verdicts was $31.8mn, whereas the mean figure for settlements stood at $10.6mn.
But hiking rates to satisfaction is nearly impossible in such a competitive landscape – even for industry leaders whose accounts are considered preferred risk and much-coveted by younger carriers hungry for premium, sources say.
Reinsurance
Given the challenges in commercial auto, traditional reinsurers have limited their exposure to loss-making, auto liability accounts in recent years.
In addition, reinsurers had a rude awakening to loss development in the broader casualty space starting fall of 2023, which resulted in ceding commission cuts and heated debates around loss trend assumptions for January 1 renewals.
Their concerns were driven by general casualty losses, but AM Best data shows that one-year loss reserve development in commercial auto liability has also jumped to $3bn in 2023 from $717mn in 2021.
Sources say some traditional reinsurers have made moves in the commercial auto business as well, imposing tougher terms and higher prices, or even going as far as reducing participation.
“There has been excess [reinsurance] capacity and I think that is starting to correct – the terms are getting where they need to be,” said a carrier executive.
One casualty reinsurance broker estimated that excess of loss treaty renewal rates have increased by 10%-20% this year, compared with 5%-10% in 2023. Facultative reinsurance rates are trending roughly five points higher than last year’s range of 5%-15%.
But despite the tougher renewals, sources say that reinsurance capacity is still available in the commercial auto space.
In fact, recent events show that backing for commercial auto programs is clearly in play: Alliant, RPS, Amwins, and Nirvana are among names that have secured or successfully replaced capacity for trucking programs in the past six months.
Some sources noted that, for programs that have been unable to get traditional reinsurance, collateralized reinsurers may be the last resort, as reported by this publication.
“You would love to have your panels led by Swiss Re and Gen Re and never have to worry about smaller balance sheet reinsurers as they represent a credit risk, but that’s just not the world we live in,” one source said.
More so than other lines of business, sources have told this publication that collateralized reinsurers are deeply involved in the commercial auto market to support MGAs and programs.
The collapse of Vesttoo in July 2023 raised doubts about the use of collateralized reinsurance; however, the market still views it as a viable option so long as there is visibility and transparency on the source of collateral.
That said, factoring in the impact of social inflation and outsized jury verdicts particularly, sources said that when combined with the vulnerabilities of collateralized reinsurance, it could be “an accident waiting to happen”.
If that becomes the case, reinsurance capacity through collateralized reinsurance could dwindle significantly.
Changes ahead
Apart from pricing, sources point to abundance of data embedded in trucking and the progress of telematics as another driver behind the seemingly endless emergence of optimistic entrants jumping into an industry that has seen losses for more than 10 years.
Not so long ago, there was a time when telematics was hailed the “silver bullet” for personal and commercial auto – although the technology didn’t prove as effective in the latter for multiple reasons, including driver resistance.
That excitement around the promise of new technology also spurred a bunch of InsurTechs to take a stab at commercial auto insurance a few years back.
But fast-forward to July 2023, and this publication wrote that insurers have begun to see telematics for what it is – a tool rather than the saviour of personal and commercial auto companies when it comes to reducing losses.
Sources indicate this change of view is reflected in the market entrants that are emerging.
“InsurTechs coming in now are planning on much more conservative growth – with smaller fanfare, but a more controlled, conservative plan rather than the old school tech plan of ‘get as much money as possible as fast as possible, then we'll figure it out’,” one source said.
On the MGA side, the source noted that new players have more executives with commercial auto experience as part of top management or the board.
That is a distinction compared to years ago when carriers that made money on other lines of business got into commercial auto as freight demand peaked during Covid-19, seeing it as low-hanging fruit.
For incumbent carriers, the new wave of competitors could spell better discipline in the marketplace, compared to previous ones that joined for top line game.
But new capacity coming in will always limit underwriters’ ability to raise rates in an oversupplied insurance market.
More fundamentally, tort reform is the number one answer sources give as a solution to put an end to the hard market in commercial auto.
Most recent legislative efforts to regulate so-called social inflation surround disclosure rules for third-party litigation funding. To date, implementation differs by state but such efforts are far from reaching nationwide scale.
“You’re pushing greed,” one underwriter source said on third-party litigation funding. “If that doesn’t stop, we’re gonna keep paying for it.”