Study Finds Inflation Has Major Impact on Auto Liability Loss Costs

Social and economic inflation drove US personal and commercial auto liability claims payouts $96 billion to $105 billion higher between 2013 and 2022, according to a new study from the Insurance Information Institute (Triple-I).

The study, Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance, said that inflation caused personal auto loss and defense containment costs to be $61 billion higher over the period, while inflation increased those costs for commercial auto liability between $35 billion and $44 billion.

The Triple-I said the study's research methodology involved comparing the latest auto liability loss development patterns to a baseline assumption without social inflation and with stable economic inflation rates.

The Triple-I study found that commercial insurers saw losses grow faster than the overall economy, with social inflation a primary influence on those losses prior to 2021. Commercial auto claim severity increased dramatically since 2020, the Triple-I found.

Personal lines auto liability insurers have seen losses growing faster than premiums in recent years, the Triple-I said. Since the 2020 accident year, personal lines insurers have seen standardized auto liability losses increase 15 percent while standardized premium fell 13 percent, the report said. Meanwhile, loss severity in the segment increased dramatically after 2019.

"For both personal and commercial auto liability lines, social inflation was the main source of increasing inflation before 2021," the study said. "For 2021 and later, increasing inflation came from a combination of economic inflation and social inflation."