Inflation drove personal and commercial auto liability claim payouts in the US higher by between $US96.1 billion ($152 billion) and $US105.2 billion ($166 billion) from 2013 to last year, an Insurance Information Institute (III) study has found. 

The average annual impact of increasing inflation is approximately 0.6% per year for personal auto liability and 2.3- 2.7% for commercial auto liability. 

For both personal and commercial auto liability lines, social inflation was the main source of increasing inflation before 2021, and from 2021 onwards the inflationary environment was caused by economic and social inflation. 

“Regardless of the source, inflated claim costs are the cause of recent increases in auto insurance prices and attract the attention of consumers, regulators, and insurers,” the study says. 

For personal auto liability insurers, losses have been growing faster than premiums in recent years; since accident year 2020, standardised losses rose 15% while standardised premium fell 13%; and the size of losses increased dramatically after 2019. 

In the commercial auto line, losses grew faster than the overall economy and claim severity has increased significantly since 2020. 

The study notes that since 2008 replacement costs for both commercial and personal auto insurance have risen 40% more than prices overall. 

“The timing of that difference is important to note. From 2008 to 2019, overall prices rose more than twice as fast as auto replacement costs,” the study says.  

“Since then, replacement costs have risen almost three times faster than overall prices. The vast differences from era to era show how different the inflation insurers face can be from what the general public sees. 

“They also show that in recent years, inflation pressures on insurance costs have grown significantly.” 

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