US auto insurers faced with soaring liability claim payouts – report
Inflation causing significant pressure to sector
US auto insurers have been seeing a dramatic surge in liability claim payouts as a result of social and economic inflation, according to a new study from the Insurance Information Institute (Triple-I).
It was found that the increase in personal and commercial auto insurer liability claim payouts had been $96 billion to $105 billion higher between 2013 and 2022.
During the same period, personal auto liability insurance saw a $61 billion rise in losses and defense containment costs (DCC), while commercial auto liability incurred an additional $35 billion to $44 billion due to mounting inflationary pressures.
Authored by industry experts Jim Lynch, Dave Moore, and Dale Porfilio, the Triple-I study classified economic inflation using the Consumer Price Index (CPI) – All Urban metric. It also made use of the concept of social inflation to describe how insurer claim payouts exceeded the CPI.
A key insight highlighted by the authors is the disparity in the size of the personal auto liability compared to its commercial counterpart.
In 2022, personal auto liability reported net earned premiums of $152.6 billion, a figure four times higher than that of commercial auto liability. Despite this gap, personal auto policyholders typically carry liability coverage of $100,000 or less, whereas commercial policyholders usually have coverage limits of up to $1 million.
For personal auto liability insurers, losses have been increasing at a faster rate than premiums in recent years.
Since 2020, standardized losses have risen by 15, while standardized premiums have fallen by 13%, according to the report. Moreover, claim severity has had a huge spike after 2019.
As for commercial auto liability insurers, losses grew at a faster rate than the overall economy.
Prior to 2021, these losses were said to have been primarily driven by social inflation. The study also found that claim severity dramatically increased after 2020.
“For both personal and commercial auto liability lines, social inflation was the main source of increasing inflation before 2021,” the Triple-I study noted. “For 2021 and later, increasing inflation came from a combination of economic inflation and social inflation.”
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