trending Market Intelligence /marketintelligence/en/news-insights/trending/rJQqdxN4ftJgJbC24VMw2A2 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

'Industry phenomenon' signals more struggles for commercial auto line

Infrastructure Issues: Tools to Dig Deep on Potential Risks

Part Two IFRS 9 Blog Series: The Need to Upgrade Analytical Tools

2018 US Property Casualty Insurance Market Report

Fintech

Fintech Funding Flows To Insurtech In February


'Industry phenomenon' signals more struggles for commercial auto line

The well-documented challenges the U.S. property and casualty industry has dealt with in the commercial auto business in recent years seem poised to continue.

Days after Progressive Corp. disclosed a $25 million adverse actuarial adjustment in its commercial lines business in response to rising bodily injury loss severity, Travelers Cos. Inc. released third-quarter results that incorporated the negative impact of re-estimations of its commercial auto loss estimates for the first half of the year. Progressive and Travelers rank as the top two U.S. writers of commercial auto business.

A chart in the slide deck for Travelers' earnings conference call shows that the average paid claim cost for commercial auto bodily injury coverage, based on calendar year data compiled and recently published by the Insurance Services Office using results for its reporting carriers, increased markedly during 2018. Though the chart did not include specific data points, it shows that the industry's calendar year 2018 costs per claim were significantly higher than those in the three previous calendar years, as well as a trend line plotted as an extension of results for 2015 through 2017.

"You can see this is an industrywide phenomenon," Travelers Chairman and CEO Alan Schnitzer said on the call, later calling the uptick "quite a significant shift."

Schnitzer said higher severities in commercial auto liability and general liability business resulted, at least to some extent, from what he described as a "higher and more aggressive level" of involvement on claims by plaintiffs' attorneys. The increases occurred "broadly across geographies, business and accounts," he said.

Progressive specified that its $25 million adjustment pertained to "traditional business market targets," which would appear to rule out the idea that it is related to challenges associated with the ride-hailing portion of its commercial auto book, which the company has classified as "transportation network company" business.

James River Group Holdings Ltd. disclosed earlier in October that it served notice to an affiliate of Uber Technologies Inc. that it was canceling all applicable insurance policies at year-end because they did not meet profit expectations. Progressive, on the other hand, indicated that it renewed commercial auto coverage to an Uber subsidiary in the various states where it writes the policies.

That Progressive took action in response to elevated bodily injury loss severity is particularly noteworthy. Its increases in incurred severity across coverages had already been running in the low-double digits for commercial auto products during recent trailing-12-month periods and excluding transportation network company business: 10% through June 30 and 11% through March 31.

In the September release, Progressive pointed to "general trends in the marketplace" as well as an internal business mix shift to for-hire trucking as to why it experienced higher severity. The for-hire trucking business, Progressive explained, has higher average severity than the business auto and contractor market tiers.

Lower loss frequency helped to partially mitigate the impact of higher severity in past quarters. Progressive reported declines of 5% and 4% in frequency for the trailing-12-month periods ended June 30 and March 31, respectively, in a development it attributed to continued product segmentation and underwriting restrictions. The resulting mix shift, Progressive added, was towards more preferred, lower-frequency business.

The September adjustment led Progressive to report a commercial lines combined ratio in excess of 100% for the first month in more than two years. The company has a long track record of significantly outperforming the industry in the commercial auto line.

The divergence between Progressive's results and those of the industry as a whole was highlighted by a 2018 calendar year result where its statutory combined ratio in the liability portion of the business of 88.7% was 5.2 percentage points above the industry's net loss and loss adjustment expense ratio for that line. The industry's combined ratio, excluding state funds and residual markets, improved to 111.6% in 2018 from 113.4% in 2017. It jumps to 114.3% for 2018 when Progressive is excluded from the industry tally.

Travelers' Schnitzer said his company has been working diligently to produce a best estimate of reserves across commercial liability business lines, but he cautioned that developing a stable view of ultimate commercial auto losses has been complicated by factors such as "the magnitude of the shift in the data," the long-tailed nature of the underlying exposure and a lengthening in the pattern of claims development.

If nothing else, the challenging environment should provide continued pricing momentum in a business line where filings for double-digit rate increases remain common. Travelers said hikes in commercial auto and commercial property lines "continued to lead the way" in driving its domestic business insurance renewal premium increases, which rose to 7.4% in the third quarter from 6.6% in the second quarter and 5.0% in the year-earlier period.