U.S. commercial auto liability insurance coverage has continued to bear the brunt of rising litigation costs that have outpaced economic inflation and fueled uncertainty in reserve estimates, part of the ongoing social inflation trend that is affecting other lines of property/casualty coverage as well, according to the new AM Best report.

While the U.S. court system plays an integral role in resolving insurance claim disputes, the exploitation of procedural rules and the utilization of sophisticated litigation strategies, along with the evolution of negative sentiment against corporations, have proven to be a troublesome issue for the insurance industry. Some of these tactics employed by plaintiff attorneys to initiate more lawsuits or increase litigation expenses can drive up total claim costs and lead to excessive verdicts. “These factors can subsequently lead to higher rates paid for insurance coverage,” said Christopher Graham, senior industry analyst, AM Best.

While economic inflation is more easily understood because it affects the costs of goods and services that people pay daily, social inflation is less tangible. AM Best perceives social inflation as the rising cost of insurance claims that exceeds general economic inflation, driven by societal and legal trends, such as higher jury awards, increased litigation, and expanded definitions of liability.

“Legal system abuse comes in several forms and can have a severe impact on insurers’ results, particularly in liability lines of coverage,” Graham said.

The report notes that social inflation has negatively affected commercial auto liability ultimate claim costs for several years, which is evident by looking at average claim severity. Economic inflation from 2014 to 2024 averaged 2.8% annually. Over the same period, commercial auto liability insurance loss payments for the first 12 months have trended upward at 6.4% annually—more than double the annual increase of economic inflation.

The commercial auto liability losses are capped by policy limits, typically $1 million. Individual auto claims resulting in loss payments exceeding that threshold will bleed into an umbrella policy, provided that type of coverage is in place. Through 2018, umbrella pricing tracked closely with general liability pricing. However, as social inflation began to impact commercial auto claims, and those claims spilled into umbrella coverages, the pricing on the latter has diverged from general liability, becoming more costly, and has yet to return to its prior level.

“Through 2018, umbrella pricing tracked closely with general liability pricing,” said David Blades, associate director, AM Best. “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.”

Among the report’s other highlights:

  • Claims being open longer leaves more exposure to jury precedent, in addition to most likely resulting in elevated claim adjustment expenses.
  • After adjusting for settlement rates, commercial auto claim frequency has increased over the past 10 years, which also creates a gap in what has been paid and what is expected to be paid.
  • Tort reforms may help, and recent reforms in Florida provide evidence of that. Sweeping tort reforms in Florida have helped offset excessive litigation costs, resulting in average paid claim severity to trend downward.

To access the full copy of this market segment report, titled “Social Inflation Adds Pressure to Property/Casualty Liability Results,” please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=369786.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2026 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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