Insurers refunded $1.2 billion to California policyholders as of June 26, according to actuarial firm Perr & Knight.
The California Department of Insurance (CDI) ordered the refunds to drivers and businesses in the state affected by the COVID-19 emergency. The companies were required to file reports outlining the details of their response to COVID-19.
CDI recently made these reports public, and Perr & Knight, which specializes in rate filings, published an analysis. Here are some key takeaways:
California’s reports have information on the number and percentage of policyholders affected. If the state is a guide, EVERY person with a personal auto insurance policy got a break on premiums, as well as millions of other policyholders, according to James Lynch, Triple-I’s chief actuary.
Private auto insurance customers received the largest share of the refunds – a little over $1 billion. Commercial auto customers received about $33 million in refunds, and workers compensation customers received $82.7 million.
Commercial multi-peril clients received $11.2 million, commercial liability $7.2 million and medical malpractice $10.3 million.
The reports also have data on payment deferrals (grace periods), which is something that has been underrecognized, in part because it was so hard to quantify.
June 28 is National Insurance Awareness Day, which means it’s a good day to evaluate your insurance coverage and assess your risk.
Triple-I has put together a video to help remind you to review your policies and consider any life changes that might necessitate updating your coverage.
This is also a good time to consider your catastrophe risk. Hurricane season started on June 1st – do you know the storm risk in your area? Do you need supplemental flood or wind insurance? Remember: anywhere that it can rain, it can flood.
With a number of carriers increasing the credit they are giving on their policies, U.S. auto insurers will return over $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to an Insurance Information Institute (Triple-I) estimate.
Auto insurers are giving refunds to their customers as people are driving less due to coronavirus shut-downs. No action is required by customers to receive credit in most cases, but to learn more, contact your auto insurer.
U.S. auto insurers will return over $10 billion to their
customers nationwide, according to an Insurance Information Institute estimate, in response to reduced driving during the
pandemic.
We’ve listed many of the companies that are offering refunds here and here. These lists are not
exhaustive, so be sure to check with your insurer to see if they are offering
refunds or credits. All
premium and rate adjustments are subject to regulatory approval.
On May 5, Allstate
Corp. CEO Tom Wilson said the
insurer would probably grant another rebate to auto insurance customers. The second round of rebates would vary
according to region. On April 6, the insurer announced that it would return
more than $600 million in premiums to its policyholders because the nation’s
drivers were traveling 40 percent to 55 percent fewer miles following
stay-at-home orders. Wilson noted that American drivers are now traveling more
miles than in mid-April, but the total is still 30 percent to 40 percent lower
than before the pandemic. Wilson said the next refund would be more precise and
that Allstate is now distributing the initial payback, which represents 15
percent of monthly premiums in April and May.
Horace Mann, a provider of affordable insurance for educators,
is giving customers a credit of 15 percent of two months of auto premiums, as
well as a grace period through June on auto, property, supplemental and life
insurance payments; enhancing coverages, including extending personal auto
coverage to those delivering food, medicine, and other essential goods; and
including Identity Fraud Advocacy Services with its Educator Advantage Program
for all home, condo, and renters customers to protect against the increased
risk due to increased online activity.
Other customer support programs
Erie
Insurance is
adding gift card and gift certificate reimbursement coverage to the company’s
ErieSecure Home® policies, in response to the recent changes affecting
businesses across the United States. The additional feature, included at no
additional cost, would reimburse customers for remaining balances on eligible
gift cards that no longer can be used at independently owned and operated local
businesses due to business closures.
Supporting communities
Foremost Insurance and Bristol West Insurance, members of
the Farmers Insurance Group of Companies, announced they have
contributed $500,000 to the Trusted
Choice COVID-19 Relief Fund established by the Independent Insurance
Agents & Brokers of America, Inc. (IIABA – Big “I”). The Fund
provides economic aid to independent insurance agencies, brokerages, and their
owners and employees affected by the COVID-19 pandemic.
Horace Mann donated $100,000 to DonorsChoose “Keep Kids
Learning” fund, an initiative to help teachers equip the most vulnerable
students with educational materials at home. The company provides free online
teaching resources, to help teachers adapt to remote learning, and it supports
a number of foundations in its home state of Illinois.
Reach out to us in the Comments section and let us know what
your company is doing to help ease the impact of COVID-19.
Since people are driving less in the midst of COVID-19
related stay-at-home orders, many auto insurers have responded with premium
refunds totaling about $10 billion.
How are consumers reacting to these refunds? A May 5 webinar
co-hosted by Cambridge Mobile Telematics’ (CMT) VP of Insurance &
Government Affairs, Ryan McMahon, and J.D. Power’s VP of Insurance
Intelligence, Kyle Schmitt, shed light on this question.
J.D. Power has been conducting consumer sentiment surveys since March 24. Schmitt said that one key takeaway is that in light of pandemic related layoffs, customers are thinking pragmatically about auto insurance, so the timing of the premium relief announcements was excellent. However, it’s important to note that auto insurance is not top of mind for many consumers struggling to keep the lights on or food on the table, and not everyone is aware of refunds.
Here are a few other key takeaways:
McMahon noted that while miles travelled are
down, speeding and distraction both peaked in April based on CMT’s analysis,
and fatalities are up.
Schmitt said that changes in price stability
driven by broad market conditions (such as accident frequency) are not well
received by consumers who will shop around in response; in contrast to price
increases driven by a life event or an accident which consumers tend to take in
stride.
When it comes to telematics, value is key.
Consumers expect to continue to not drive as much in the foreseeable future and
are thinking about the cost savings offered by telematics programs, therefore
interest in telematics has spiked according J.D. Power surveys.
Of those that think their driving rates will
remain low 40 percent are interested in telematics.
The panelists were also asked to speculate about possible
increases in fraud, and McMahon said that fraud activity always comes with
economic reductions, however it’s possible that fraudulent claims may be easier
to spot because there are fewer claims.
How will the COVID-19 pandemic affect auto
insurers in the longer term? No one knows for sure, of course, but a new McKinsey
study provides a framework for considering the question.
Fewer people are driving due to business
closures and work-from-home practices. This could lead to fewer accidents and
claims – but evidence suggests severity of the claims generated may worsen. Speeding
has increased in several states – in some cases, leading to fatal accidents.
In the longer term, McKinsey suggests, the
pandemic could precipitate structural changes in the market for car insurance:
“Mobility trends may pause if more people choose to own a car and drive
everywhere because they think ride sharing and public transportation are too
risky…. Historically low oil prices will make driving much more affordable.”
On the other hand, if car purchases decrease
because of economic uncertainty and unemployment, insurance sales could decline,
hurting revenues. The industry already has returned
more than $10 billion to policyholders through premium
relief during the crisis, which also could affect insurers’ bottom lines.
Four scenarios
The McKinsey report lays out four scenarios to
help insurers think about how the economic impact may play out in the longer
term.
Pause and rebound. This scenario
supposes the economic slowdown will end rapidly and the rebound will occur as
quickly as the contraction. Consumers’ behavioral changes are assumed to be
limited. Drivers might be a bit more conservative after the shutdown,
exhibiting more caution, leading to fewer accidents which would help insurer
profitability.
“Pent-up demand, supply-chain innovation, and infrastructure
commitments would pull the economy to near pre-COVID-19 levels within weeks,”
McKinsey writes.
YOLO (You Only Live Once).
This scenario is defined by a rapid economic rebound but also more aggressive
driving behaviors: “Fueled by cheap gas and a disdain for shared mobility, the
roads and highways would become more crowded.”
Under
this scenario, McKinsey writes, accident
severity would continue to climb, putting pressure on insurers to raise rates.
The sudden drop in accident frequency during the pandemic, followed by a rapid
escalation, “could strain the accuracy of actuarial techniques and regulatory
expectations.”
Retrenchment. Difficulty managing
the virus and complications from the business shutdown lead to a lengthy
economic downturn: “As in the pause and rebound scenario….new behavioral norms
would result in less travel, redefine entertainment, and contribute to a more cautious
outlook on life.”
Favorable trends in claims frequency would continue, and claims
severity would moderate in line with the more conservative behaviors.
But, McKinsey writes, “consistent with economic conditions, a
surge would occur in the nonstandard market and state risk pools. Fraud would
also spike as a by-product of economic pressures.”
Insurers could face consumer and regulatory pressure to return more
premiums or reduce them further and expand coverage. Profitability would suffer.
Black swan. Worst case for
economic contraction and behavioral changes. New behavioral norms generate a YOLO outlook and compromise
policing capabilities. Accident frequency would rise sharply. Claims severity
would continue to climb.
“In addition,” McKinsey writes, “regulatory pressure could push
rates down further or force expanded coverage,” exacerbating worsening profitability.
McKinsey
analyzes the potential impact on auto insurers under each of these scenarios
and associates each with a projected combined ratio – the most frequently used
measure of insurer profitability.
