AM Best: Social Inflation Drives Surge in Commercial Auto Liability Claims

According to recent report from AM Best, commercial auto liability insurance coverage has continued to bear the brunt of rising litigation costs, outpacing economic inflation.

Social inflation has negatively affected commercial auto liability ultimate claim costs for several years, which is evident by looking at average claim severity. Economic inflation from 2014 to 2024 averaged 2.8% annually. Over the same period, commercial auto liability insurance loss payments for the first 12 months have trended upward at 6.4% annually—more than double the annual increase of economic inflation, AM Best said.

AM Best defines social inflation as the rising cost of insurance claims that exceeds general economic inflation, driven by societal and legal trends like higher jury awards, increased litigation, and expanded definitions of liability.

AM Best Special Report: Social Inflation Adds Pressure to US Property/Casualty Liability Results

Commercial auto liability losses are capped by policy limits, typically $1 million. Individual auto claims resulting in loss payments exceeding that threshold will fall to an umbrella policy if that type of coverage is in place.

Through 2018, umbrella pricing tracked closely with general liability pricing. However, as social inflation began to impact commercial auto claims, and those claims spilled into umbrella coverages, the pricing on the latter has diverged from general liability, becoming more costly, and has yet to return to its prior level.

Historically, umbrella pricing followed closely with general liability but more recently, David Blades, associate director at AM Best said, “As social inflation began to impact commercial auto claims, and those claims spilled into the umbrella coverage, umbrella pricing diverged from general liability, becoming more costly.”

Among the report’s other highlights:

• Claims being open longer leaves more exposure to jury precedent, in addition to most likely resulting in elevated claim adjustment expenses.
• After adjusting for settlement rates, commercial auto claim frequency has increased over the past 10 years, which also creates a gap in what has been paid and what is expected to be paid.
• Tort reforms may help. Sweeping tort reforms in Florida have helped offset excessive litigation costs, resulting in average paid claim severity to trend downward.