First-year commercial auto liability loss payments grew at 6.4% annually between 2014 and 2024, outpacing the 2.8% average economic inflation rate by more than double, even as insurers pushed through years of consecutive rate increases, according to a new AM Best special report on social inflation’s impact on US property/casualty liability results.
The gap reflects a litigation environment that has proved resistant to pricing corrections. Rising jury awards, increased attorney involvement in commercial claims, and the wider use of third-party litigation funding have driven claim severity well beyond what rate action alone can contain, AM Best analysts said.
“Legal system abuse comes in several forms and can have a severe impact on insurers’ results, particularly in liability lines of coverage,” said Christopher Graham, senior industry analyst at AM Best.
The clearest downstream effect has appeared in umbrella coverage. Through 2018, umbrella pricing tracked closely with general liability. As social inflation pushed more commercial auto claims above the typical $1 million policy limit and into umbrella layers, pricing for the two lines diverged, and has not converged since, AM Best said.
That shift has changed how umbrella towers are structured and priced for fleet-heavy accounts. Clients who previously purchased umbrella and primary liability from the same carrier have been moving away from that arrangement, and average umbrella limits have compressed. A 2023 WTW report found that 55% of its large and complex clients purchased umbrella and primary liability from the same carrier in 2023, up from 37% in 2015, while average umbrella limits for those structures dropped to $11.2 million from $20.1 million eight years earlier. That is a sign that capacity has tightened even as demand for coverage remains.
AM Best noted that open claims create compounding exposure. Cases that stay open longer face more opportunity for adverse jury precedent to shape settlement values, which in turn inflates claim adjustment expenses. After adjusting for settlement rates, commercial auto claim frequency has also increased over the past decade, widening the gap between what has been paid and what is ultimately expected to be paid.
Average loss severity for commercial auto liability claims has more than doubled over the past nine years, growing at roughly 8% annually, according to a September 2025 AM Best commercial auto market review. Despite 14 consecutive years of rate increases, most in the upper single to double digits, premiums have yet to close the gap. The overall commercial auto line posted a $4.9 billion underwriting loss in 2024, a net figure that reflects a $6.4 billion liability loss partially offset by a $1.5 billion physical damage profit.
The line posted a $4.9 billion underwriting loss in 2024, with commercial auto liability alone accounting for $6.4 billion of that figure. AM Best estimated the line remains under-reserved by $4 billion to $5 billion industry-wide.
“Adverse loss development has been a constant drain on commercial auto results and is getting worse,” said David Blades, associate director at AM Best.
Those reserve pressures have a direct effect on the coverage terms and limits available to buyers. Among the top 20 commercial auto insurers, 14 posted combined ratios above 100 in 2024, and 14 reported underwriting losses in at least three of the past five years. Underwriters responding to sustained losses have tightened terms, raised retentions, and become more selective about the risks they are willing to take on, particularly for high-hazard fleet operators. Annual liability claim costs peaked at approximately 7% in 2023, a 20-year high, according to Swiss Re Institute’s September 2024 sigma report Litigation costs drive claims inflation: indexing liability loss trends.
AM Best pointed to Florida’s sweeping tort reforms as evidence that legislative action can move the needle. Following the passage of HB 837, litigation between plaintiffs and auto insurers over auto glass repairs fell from 24,720 lawsuits in the second quarter of 2023 to 2,613 in the same period of 2024, according to an August 2025 Milliman analysis. Average paid claim severity in Florida has since trended downward, the report said. The scale of that reduction illustrates that tort reform can help, but only when it directly targets the procedural rules and litigation incentives that plaintiff attorneys use to drive up claim costs, AM Best said.
Nuclear verdicts, defined as jury awards of $10 million or more, have become a defining feature of commercial auto liability claims in the US. The US is the largest third-party litigation funding market globally, accounting for roughly 52% of an industry estimated at $17 billion, according to Swiss Re. AM Best’s latest report frames these dynamics not as cyclical pressures that a hard market will eventually resolve, but as structural features of the US liability environment that require both pricing discipline and, where possible, legislative intervention to contain.
