According to Fitch Ratings, this sector has been a “chronically underperforming product segment.”
Fitch Ratings has revealed that the commercial auto insurance market as a whole had not only experienced an underwriting loss last year, but also that this was the fifth year in a row in which that happened.
Fitch also said that the P&C market was in its third consecutive year of considerable underwriting profits.
The American commercial auto insurance market has become a “chronically underperforming product segment” for insurers, said Fitch. These underwriting losses have even been accelerating. Fitch analysts showed that from 2011 to 2015 the combined ratio for the sector averaged 106. However, the most recent year had a combined ratio which increased to 109.
Fitch Ratings managing director, James Auden, explained that “The poor performance is a reflection of previous overly aggressive pricing in commercial auto and a recent extended period of heightened claims severity, particularly relating to bodily injury claims.”
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The CIAB did note that in Q4 2015 and in Q1 2016, there was a slight rise in commercial auto insurance rates.
The Council of Insurance Agents and Brokers said that those commercial written premiums broadened by over 7 percent in 2015. Insurance companies addressed this trend by using re-pricing and underwriting actions in order to respond to the weaker underwriting results. However, Fitch stated that the changes in rates were not able to keep up with the loss that was experienced by the sector.
Fitch explained that though the commercial lines market as a whole has seen more competition in its pricing, the majority of sectors have been flat as a result of the reduction of changes in prices. That firm also predicted that commercial auto rates will see more of a significant increase within the very near future, which should help to bolster the underwriting results that will be seen throughout 2016 as a whole.
Still, it did say that it is likely that there will be a number of years before there is a shift toward underwriting profits in the commercial auto insurance sector. Auden also underscored that “Despite a poor overall performance and weaker industry profits, a number of companies continue to produce significant underwriting profits in this line.”