A new AM Best report finds that commercial auto liability insurance is bearing the brunt of rising litigation costs, with claim payouts growing far faster than general economic inflation. The culprit, the rating agency says, is “social inflation” — the rising cost of insurance claims driven by societal and legal trends rather than the price of goods and services.
Commercial auto claims (Credits: Insurance Journal)
What Is Social Inflation?
AM Best defines social inflation as the rising cost of insurance claims that exceeds general economic inflation, driven by factors like higher jury awards, increased litigation and expanded definitions of liability. From 2014 to 2024, US economic inflation averaged 2.8% annually — but commercial auto liability loss payments in the first 12 months trended upward at 6.4% annually, more than double the rate of economic inflation.
Commercial Auto Claims Are Spilling Into Umbrella Policies
Commercial auto liability losses are typically capped by policy limits of around $1 million, with claims above that falling to umbrella coverage when it is in place. Historically, umbrella pricing tracked closely with general liability pricing — but as social inflation pushed commercial auto claims into umbrella coverages, umbrella pricing has diverged and become more costly, and has yet to return to its prior level. The report also notes that claims staying open longer face more exposure to jury precedent and higher claim adjustment expenses.
Tort Reform in Florida Is Easing Some Pressure
There is at least one bright spot in the data: sweeping tort reforms in Florida have helped offset excessive litigation costs, with average paid claim severity there trending downward. Whether similar reforms spread to other states will be a key question for commercial auto insurers — and the businesses paying their premiums — going forward.
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Source: Insurance Journal — read the full story there.
