The novel coronavirus, SARS-CoV-2, and COVID-19, has impacted all parts of our lives across this country and the globe. As we grapple with how to slow down the spread of the disease and balance people’s various needs and protecting public health, the ripple effect of stay-at-home orders and other restrictions can be seen in numerous parts of our lives.
When it comes to the auto insurance industry, insurers wonder how the current situation will affect long-term profits. Meanwhile, consumers are interested in what will happen to the cost of policies. If profits and premiums are affected, how long will that change last? Do we see a temporary adjustment of the market to current conditions, or will COVID-19 cause a permanent shift in the auto insurance business? The answer is more complicated than you might think.
Profits and Public Relations
While the reduction in driving from shelter-in-place may have resulted in fewer claims and higher earnings for auto insurers, we have seen many insurance companies react with refunds, discounts, and added coverages to keep customers and improve their public image. These efforts add up to an estimated $10.5 billion.[1]
Most of the major auto insurers have jumped on board to engage in this kind of action to encourage positive customer relations and retain as much of the market share as possible. The consumer benefits are so popular that motorists are encouraged to shop around to obtain better insurance rates and deals.[2]
- State Farm gave policyholders an approximate 25% credits on premiums between March 20 and May 31, amounting to $2 billion;
- Chubb Auto Insurance offered a 35% premium reduction for April and May and additional discounts over subsequent months;
- Allstate and Liberty Mutual offered refunds of 15% on premiums;
- Berkshire Hathaway Inc.’s GEICO is giving a 15% credit on renewals made between April and October;
- American Family Insurance gave customers a one-time $50 refund per covered vehicle;
- Farmers Insurance and its subsidiary, 21st Century Insurance, reduced April premiums by 25%;
- USAA gave a 20% credit on two months of insurance; and
- Progressive Insurance rolled out a 20% credit on April and May premiums.
In addition to the benefits described above, auto insurance companies may have also seen losses due to people discontinuing their policies. With unemployment rates soaring and certain industries unable to operate, some drivers may not be able to keep up payments on auto loans, leases, or insurance. The extent to which economic hardships have impacted the consumer to maintain auto insurance also depends on the state determining whether any leniency regulations have been issued, such as holds on non-renewals for nonpayment.
Finally, it remains to be seen how long the current situation will continue. Short-term benefits to consumers and potentially increased profits may not last long as states all across the country open back up to encourage economic activity. However, many experts predict that subsequent waves of infection will occur, possibly necessitating the return of shutdowns and the driving conditions seen in March and April. Additionally, some workers may continue to work from home even as conditions return to normal. The magnitude of this segment of the workforce is not yet known.
Car Crash Rates and Severity
With fewer cars on our roadways, the exposure to accident risk has gone down. However, when it comes to car accidents, it is important to not only look at the number of accidents, but also the severity of those accidents. In technical terms, that means looking at the collision rate for drivers and the fatality rates incorporating mileage or number of collisions. Several statistics are reported for various states that illustrate that while collision rates are down (often expressed as the total number of collisions or the number of collisions per miles driven) and the raw number of fatalities has also decreased, the evidence shows that the fatality rate per collision or per mileage driven has gone up significantly:[3],[4]
- Austin – slight dip in collisions but rise in traffic injuries
- Boston – the ratio of fatal crashes to all collision rose 65% in April 2020 compared to April 2019
- Chicago – the ratio of fatal crashes to all collision rose 292% in April 2020 compared to April 2019
- New York City – the ratio of fatal crashes to all collisions rose 167% in April 2020 compared to April 2019
- Massachusetts – collisions decreased by 73%, but fatalities decreased by only 38%, there was an increase in the rate of fatalities per collisions
- Minnesota – both car crashes and crash fatalities more than doubled
- Overall, the National Safety Council’s data demonstrates the following for April 2020 compared to April 2019: [5]Number of miles driven – 39.8% decrease
- Number of deaths – 18% decrease
- Mileage death rate – 36.6% increase
- Mileage death rate per 100 million vehicle miles driven – 1.47 (as compared to 1.08 in 2019)
To explain the increase in fatality rates per collision or per mileage driven, it boils down to the phenomenon that with less traffic, drivers who engage in risky behavior like speeding are more reckless. In Los Angeles, with empty streets, drivers speeding went up as much as 30% on some roads. With an increase in speeding, there is a higher likelihood that car accidents will result in casualties. Furthermore, the risk of fatality is not limited to drivers. Since the pandemic, people have been spending more time participating in outdoor activities. Pedestrians and bicyclists need to remain aware of the risk of being injured or killed by a reckless driver. If a reckless driver injures an individual, they can file a claim with the at-fault’s insurance or their own car insurance company and may receive compensation for medical expenses. If there is a personal injury claim it is best to speak to an experienced car accident lawyer.
Additionally, some states approved measures intended to respond to the pandemic but had negative consequences. For example, repealing requirements for teen drivers to pass road tests before acquiring licenses. Second, relaxing hours of service rules for commercial vehicle drivers.[6] On the other hand, authorities in Los Angeles have tried to enact countermeasures such as removing the need to push a walk button at a crosswalk, thereby lengthening the light cycle at many intersections. In addition, setting traffic lights to night settings in order for drivers having a better chance to encounter a red light when traveling on a straight path.[7] It is unclear how these competing factors will impact the collision rates or fatality rates per collision moving forward. In terms of the impact on auto insurance premiums, more severe crashes may increase the payouts from collisions and negate savings resulting from decreased collision rates. If car crashes continue to have a higher likelihood of resulting in a fatality when they happen, premiums in the long term may return to pre-pandemic levels or increase to reflect the risk inherent in driving.
[3] https://news.trust.org/item/20200626112931-nf9qa
[4] https://usa.streetsblog.org/2020/04/09/covid-19-cuts-car-crashes-but-what-about-crash-rates/
[5] https://injuryfacts.nsc.org/motor-vehicle/overview/preliminary-monthly-estimates/
About the Author
Graham Sutliff is the co-founder of Sutliff & Stout, Injury & Accident Law Firm. Graham is Board Certified in Personal Injury Trial Law, and he has been actively trying personal injury cases for over fifteen years.