Why Auto Insurance Claims Are Becoming More Expensive in 2025

The auto insurance industry is currently facing numerous challenges, as businesses contend with increasing costs and ever-changing risks. Among the most influential factors reshaping the industry are social inflation and third-party litigation financing. These two forces are not only driving the frequency of large-scale “nuclear verdicts” but are also contributing to soaring jury verdicts and settlement amounts, putting added pressure on insurers who are struggling to manage growing loss expenses.

Why Auto Claims Are Becoming More Expensive
Auto claims today are more costly than ever before, and this is due to several contributing factors:

Medical Inflation and Rising Healthcare Costs: As healthcare expenses continue to rise, bodily injury claims related to auto accidents are becoming more expensive.

Advanced Vehicle Technology and Supply Chain Disruptions: The integration of new technologies in vehicles, combined with supply chain delays, has led to increased repair costs and longer repair times. This directly impacts physical damage claims, along with associated costs like rental car reimbursements.

Tougher Auto Liability Market: Businesses with vehicle fleets, regardless of size, are increasingly exposed to sudden and significant loss risks, making it more critical than ever to assess their auto insurance coverage for gaps and additional protection options.

Understanding Auto Liability Coverage
Commercial auto liability insurance is a key part of any business’s insurance policy, protecting them financially in the event of an accident where they are deemed legally responsible for injuries or property damage to third parties. However, commercial auto policies can be complex and often misunderstood. To determine your coverage, consider the following essential questions:

1. Am I legally responsible for the incident?
2. Is the party seeking coverage classified as an insured?
3. Does the vehicle involved qualify as a covered auto?
4. Are there any exclusions in the policy that might apply?

The policy’s auto symbols—numeric codes denoting specific types of vehicles—help determine the scope of coverage. By consulting the declaration page of your policy, you can find information about which vehicles are covered, what type of coverage is included (liability or physical damage), the policy’s limits, premium costs, and whether options like personal injury protection (PIP) or medical payments are part of your plan.

Decoding Auto Symbols
Auto symbols help define what vehicles are covered under the policy. These symbols are part of the Description of Covered Auto Designation Symbols section and can be found on the declaration page. Below is a breakdown of the most common symbols:

Symbol 1: Any Auto – Offers broad coverage for any vehicle, whether it is owned, borrowed, leased, or hired. Typically applies to liability coverage only.
Symbol 2: Owned Autos Only – Covers any vehicles owned by the business, including those purchased after the policy begins.
Symbol 3: Owned Private Passenger Autos Only – Focuses on private passenger vehicles, excluding larger vehicles used for hauling.
Symbol 4: Owned Autos Other Than Private Passenger – Includes trucks, vans, and other vehicles used for commercial purposes.
Symbol 5: Owned Autos Subject to No-Fault – Applies to vehicles in no-fault states where personal injury protection (PIP) is required.
Symbol 6: Owned Autos Subject to Compulsory Uninsured Motorist Law – Covers vehicles in states that mandate uninsured motorist coverage.
Symbol 7: Specifically Described Autos – Only covers the vehicles explicitly listed in the policy, requiring regular updates to avoid gaps.
Symbol 8: Hired Autos Only – Covers leased, rented, or borrowed vehicles that are not owned by employees or their households.
Symbol 9: Non-Owned Autos Only – Provides coverage for vehicles used in business operations but not owned by the business (often applies to employee-owned vehicles).

Hired and Non-Owned Auto (HNOA) Coverage: An Essential Add-on
Hired and non-owned auto coverage is essential but often misunderstood by businesses. This coverage works as excess insurance, meaning it kicks in only after the primary insurance (like the employee’s personal auto insurance or rental car insurance) has been exhausted.

To fill coverage gaps, two additional endorsements are highly recommended:

1. Employees as Insureds: This extends liability protection to employees using their personal vehicles for business purposes, though it remains an excess coverage.

2. Employee Hired Auto: This covers vehicles rented in an employee’s name for business use and can provide primary physical damage protection for such vehicles.

Due to the rise in claims related to hired and non-owned autos, underwriters are paying closer attention, and premiums for this coverage have started to rise. It is crucial for businesses to regularly review their declaration pages to ensure adequate protection.

Contingent Auto Liability: Adding Extra Protection
Contingent auto liability is a relatively new concept gaining traction as more companies rely on third-party drivers and non-owned vehicles. In today’s litigious climate, assuming that a third-party hauler’s insurance will suffice is a risky move. This is where contingent auto liability coverage becomes invaluable.

Contingent auto liability offers an added layer of protection for businesses that use third-party haulers or contractors. It activates when the primary liability coverage is insufficient, providing coverage for vicarious liability—the legal responsibility one party may have for another’s actions. For example, a lumber company that hires a third-party trucker to transport its goods would benefit from contingent auto liability in case the trucker’s insurance fails to cover the full extent of damages.

Contingent auto liability can also apply to transportation companies that work with subcontracted drivers. Even though the subcontractors may carry their own insurance, the company can still be exposed to lawsuits for negligent hiring or vicarious liability if the subcontractors’ limits are insufficient.

It’s important to note that while commercial general liability (CGL) policies may seem to cover some contingent auto liability scenarios, they are not designed to handle auto-related incidents. Relying solely on a CGL policy can leave businesses exposed to significant risks, making contingent auto liability a necessary addition.

Protecting Your Business in an Evolving Landscape
As the auto insurance sector continues to face increased challenges, including rising costs and shifting legal risks, businesses must remain vigilant in protecting themselves. Understanding your policy, identifying gaps, and considering additional coverage options like HNOA and contingent auto liability can significantly improve your ability to handle unforeseen claims and mitigate rising insurance costs.

In this complex environment, partnering with an experienced insurance advisor can help ensure that your business is adequately covered and positioned for the future. By staying proactive and informed, companies can navigate the increasing challenges of social inflation, medical costs, and third-party risks, maintaining financial stability in a rapidly changing insurance landscape.