Commercial Auto Loss Payments Outpace Inflation at 6.4%

By Daniel Okafor

Commercial auto liability loss payments for the first 12 months rose at a 6.4% annual pace from 2014 to 2024, more than double the 2.8% annual rate of economic inflation, AM Best said.

AM Best’s recent report said commercial auto liability coverage bore the brunt of rising litigation costs. Its payment trend measures the first year of losses. Its inflation figure covers the same period. The comparison shows claim costs pulling away from the general price environment.

What is driving the gap?

AM Best defines social inflation as the rising cost of insurance claims that exceeds general economic inflation. It cited higher jury awards, increased litigation and expanded definitions of liability as drivers. The report links those legal and social shifts to a cost increase that has outpaced general inflation for years.

AM Best said social inflation has weighed on commercial auto liability ultimate claim costs for several years. The report pointed to average claim severity as evidence. AM Best’s analysis shows insurers facing claim costs above the rate implied by broad inflation.

How do auto claims reach umbrella policies?

Commercial auto liability losses are capped by policy limits, typically $1 million, AM Best said. When an individual auto claim produces loss payments above that limit, the excess falls to an umbrella policy if the insured bought that coverage.

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.”

Before that shift, umbrella pricing tracked closely with general liability through 2018, AM Best said. AM Best also said umbrella pricing has yet to return to its prior level. The spillover links a capped auto policy with the layer above it. Under AM Best’s account, a claim above $1 million can influence both auto loss experience and umbrella pricing.

What do longer claims and frequency reveal?

AM Best’s report also highlighted three features of claim experience.

• Claims that remain open longer expose insurers to jury precedent. AM Best said most such claims are also likely to produce elevated claim adjustment expenses.
• After adjusting for settlement rates, commercial auto claim frequency increased over the past 10 years, AM Best found.
• The report said the adjusted frequency increase creates a gap between what has been paid and what is expected to be paid.

Duration extends the period in which jury precedent can affect a claim, AM Best said. AM Best adjusted its frequency comparison for settlement rates. It linked the rise to the gap between paid and expected losses. Together, severity, frequency and duration show why the 6.4% payment trend reflects broad experience rather than one isolated loss year.

Can tort reform change the trajectory?

Tort reform may help, AM Best said. Its report cited sweeping reforms in Florida that helped offset excessive litigation costs. Average paid claim severity in the state then trended downward.

The Florida result contrasts with the broader commercial auto pattern in the report. Across 2014-2024, loss payments rose 6.4% annually, against 2.8% economic inflation. AM Best’s Florida example links a change in legal rules to lower paid severity. It suggests litigation pressure and liability definitions can move claim costs in either direction.

Tort reform therefore targets the social-inflation mechanism AM Best identified. AM Best linked social inflation to jury awards, litigation and broader definitions of liability. The Florida evidence shows that paid severity can respond to legal change, not merely follow a fixed inflation trend.

If the 6.4% payment pace persists and claims continue to exceed the typical $1 million auto limit, AM Best’s findings point to continued pressure on both auto and umbrella pricing. The test is whether claim severity, adjusted frequency and duration begin to ease together.