According to a recent report from AM Best, commercial auto liability insurance continues to bear the brunt of rising litigation costs, outpacing economic inflation.
Social inflation has had a negative impact on claims costs in the commercial motor vehicle liability insurance business for several years, which is clear from the average claim amount. Economic inflation averaged 2.8% per year from 2014 to 2024. During the same period, commercial auto liability insurance claims payments trended up 6.4% a year in the first 12 months – more than double the annual increase in economic inflation, AM Best said.
AM Best defines social inflation as the rising cost of insurance claims in excess of general economic inflation and caused by social and legal trends such as higher jury premiums, more litigation and expanded definitions of liability.
AM Best Special Report: Social inflation is increasing pressure on U.S. property/casualty liability insurance results
Commercial automobile liability losses are limited by insurance limits, typically $1 million. Individual automobile claims that result in claims payments exceeding this threshold will be covered under an umbrella policy if this type of coverage is available.
In 2018, umbrella pricing largely followed general liability pricing. However, as social inflation began to impact commercial automobile claims and those claims spread to roofing, the latter’s pricing diverged from general liability, became more expensive, and has not yet returned to previous levels.
In the past, umbrella policy pricing followed general liability closely, but more recently David Blades, associate director at AM Best, said: “As social inflation began to impact commercial motor vehicle claims and those claims impacted roof coverage, umbrella pricing diverged from general liability and became more expensive.”
Other highlights of the report include:
- Because claims remain open for longer, there is a greater risk of jury precedent, which will also most likely result in higher claims costs.
- Adjusted for billing rates, the frequency of commercial motor vehicle claims has increased over the past decade, which also creates a gap between what is paid and what is expected.
- Tort reform can help. Comprehensive tort law reforms in Florida have helped offset excessive litigation costs, which has resulted in the average amount of damages paid tending to decline.
Topics
Motor vehicle damage insurance, commercial insurance, AM Best Liability
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