U.S. auto insurers will return more than $10 billion to their
customers nationwide, according to an estimate released on April 11 by the Insurance
Information Institute (Triple-I).
“Insurers
are again fulfilling their role as economic first responders by providing
financial relief to customers when they need it most,” said Sean Kevelighan,
CEO, Triple-I. “If the rest of the nation’s private-passenger auto insurers are
as generous as the companies the Triple-I knows about, we project insurers will
be giving customer refunds, discounts, dividends, and credits totaling $10.5
billion.”
The
Triple-I’s $10.5 billion estimate is based on its analysis of 14 U.S. auto
insurers who announced this
week premium refunds, discounts, dividends, and credits
totaling $8.1 billion. These insurers cited reduced policyholder mileage
and the receipt of fewer claims amid the COVID-19 crisis as the reasons they
were able to make these decisions.
Given
there are hundreds of companies that sell private-passenger auto insurance in
the U.S., the Triple-I looked at the industry’s cumulative market share and
estimated an additional $2.4 billion in refunds, discounts, dividends and
credits were forthcoming. The Triple-I has updated its Fact Sheet, Insurers Offer
Forward-Looking Solutions For COVID-19 Recovery, to reflect the
latest steps taken by the nation’s auto insurers.
“These
are challenging financial times for millions of Americans, and the country’s auto
insurers are making it easier for their customers to get through this
extraordinary time in U.S. history,” Kevelighan stated.
The
Triple-I estimates the typical U.S. auto insurance customer spent $1,113 in
2019 to cover a single private-passenger vehicle.
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 Sean Kevelighan, Triple-I CEO,
urged customer to reach out to their insurers. “We always recommend the
customer contact the insurer and explain their individual situations. Insurers
are always happy to look at individual situations and work with the customer,”
he said in a Weather
Channel interview.
Here are the refunds some of the major auto insurers
are offering:
Allstate customers will get “Shelter-In Place
Paybacks,” adding up to $600 million over the next two months. “This
is fair because less driving means fewer accidents,” Tom Wilson, the company’s chair,
president and chief executive officer said in a statement.
American Family will return approximately $200 million to its auto insurance customers.
Farmers auto customers will receive a 25 percent reduction in their April premiums. “We are committed to helping customers during this unprecedented time,” said Jeff Dailey, the company’s CEO. “As we continue receiving updated information in the coming weeks, we’ll assess additional ways to take care of our customers.”
The
Hanover Insurance Group will return 15% of April and May auto premiums to its eligible
personal lines customers. The company also announced additional customer relief
measures and a commitment to contribute $500,000 to nonprofits in local
communities to address needs arising from the public health crisis.
The
Hartford announced its COVID-19 Personal Auto Payback Plan, which will
provide customers with a 15 percent refund on their April and May personal auto
insurance premiums. Over the next two months, the company will distribute
approximately $50 million to its customers.
Liberty Mutual will return approximately $250 million to
customers. Personal auto insurance customers will receive a 15 percent refund
on two months of their auto premium.
MetLife
Auto & Home customers will
receive a 15% credit for April and May based on their monthly premiums. The
company is also extending coverage under all personal auto insurance programs
at no additional charge while customers are making deliveries in response to
the crisis, effective March 20, 2020, through May 1, 2020. Additionally,
MetLife Auto & Home is offering identity protection coverage to its
customers.
State Farm announced an up to a $2 billion dividend that will
go to its auto insurance customers. Customers do not need to take any action to
receive this dividend, which will appear as a credit on their auto policy. On
average, State Farm Mutual auto customers can expect to receive a credit of
about 25 percent of premium for the time period March 20 through May 31; exact
percentages will vary by state.
The
Travelers Companies is giving U.S. personal auto insurance customers a 15 percent
credit on their April and May premiums. Travelers will continue to assess the
program as more information comes to light about the impact of the COVID-19
crisis on the driving environment and auto claims.
USAA is set to return $520 million to its members for
driving less during the COVID-19 shelter-in-place orders. The company said in a
statement that the payment is a result of data showing members driving less
during the “Stay Home, Work Safe” orders across the country.
IICF’s Children’s Relief Fund
The Insurance Industry Charitable Foundation (IICF)
has launched a national industry-wide fundraising campaign to benefit
vulnerable children. Funds raised through the COVID-19 Crisis: IICF
Children’s Relief Fund will help support children at risk of food
insecurity, educational disruption, family homelessness and other circumstances
exacerbated by the crisis. To make a donation and support children in need,
please contribute here.
The Allstate Foundation
The
Allstate Foundation together with Allstate employees and agency
force members, will donate resources across the nation to support communities
during the COVID-19 crisis.
The Foundation is contributing $5 million to accelerate relief and
recovery for domestic violence victims, youth in need, first responders and
communities at large.
“It’s incredibly inspiring to see people finding ways to take care
of each other,” said Elizabeth Brady, Allstate chief marketing, customer and
communications officer and trustee of The Allstate Foundation. “For 68 years,
The Allstate Foundation has delivered on Allstate’s promise to serve as the
Good Hands – especially in a moment of need.”
The Nationwide Foundation
The Nationwide
Foundation is making $5 million in contributions to local and national
charities to support medical and economic response efforts.
“As communities experience impacts related to the pandemic,
many non-profit organizations stand on the front lines, providing basic
necessities, wellness services and support to those in need,” said Nationwide
CEO and Nationwide Foundation Chairman Kirt Walker. “Finances, staffs, programs and resources are
being stretched as these non-profits not only serve their communities but feel
the impact themselves. During these challenging times, we each have a
responsibility, when we can, to lift those around us.”
One of the largest
car-insurance companies in the country and a smaller Midwestern auto insurer
are refunding hundreds of millions of dollars to their policyholders, citing a
dramatic drop in accident claims from Americans hunkered down in their homes, The
Wall Street Journal reports.
PathogenRX, a parametric insurance policy
developed by broker Marsh, Munich Re, and technology firm Metabiota, is designed
to provide business interruption insurance in the event of a pandemic, Insurance
Journal reports.
When the coronavirus outbreak forced the
cancellation of Wimbledon it looked like game, set, and match against the All
England Club. It turns out, The Times reports, that the club has
insurance that covers infectious diseases and is putting together a claim
potentially in excess of £100 million.
World insurers told
governments on Monday that making them pay out on losses suffered due to the
coronavirus that were not covered by policies risked destabilizing the
insurance industry, Reuters reports.
Insurance brokers say viruses and pandemics are specific
exclusions in many such policies, which are often included with standard
property and casualty coverage. But whether COVID-19 is the basis for a
business interruption claim remains an open question as government leaders and
the plaintiffs’ bar wrestle over the issue.
COVID-19 could produce a big increase in social inflation,
according to A.M. Best. The reason: expectations that businesses will sue their
insurers in an attempt to access their business interruption coverage for
losses relating to the coronavirus pandemic.
SARS
infected 8,000 people and led to millions of dollars in business-interruption
insurance claims – including a $16 million payout to a single hotel chain. As a
result, The Washington Post reports, many insurers added exclusions to
standard commercial policies for losses caused by viruses or bacteria.
The Federal Emergency Management Agency (FEMA)
announced that it will extend the grace period to renew flood insurance
policies to help policyholders affected by the coronavirus (COVID-19) pandemic.
FEMA said it would push back the grace period from 30 days to 120 days.
First responders are preparing for raging wildfires that they
expect will consume thousands of acres and drive some residents from their
homes in upcoming months. But this year, CNBC reports, preparations have
stalled. The coronavirus pandemic has hit the country’s already strained
emergency services, raising concerns over inadequate disaster relief during
peak fire season.
Florida’s Chief Financial Officer has ordered the Division of Risk
Management to fulfill workers’ compensation claims for frontline employees who
work for the state, the Tampa Bay Times reports. But the order doesn’t
include similar workers in the private sector.
Stay-at-home orders
and other travel restrictions due to COVID-19 have limited the number of miles
being driven and have consequently put pressure on auto insurers to rebate
premiums or otherwise provide offsets, S&P Global Market Intelligence reports.
While U.S. private
auto direct premiums written have not declined by more than 0.3 percent on a year-over-year
basis in at least the past two decades, the pandemic risks maintaining this
record. Certain state regulators and auto insurers are now taking steps to give
financially burdened consumers additional time to make payments.
However, the article says, those steps may not be enough as public pressure increases. The Consumer Federation of America has proposed that auto insurers provide monthly offset payments to consumers to avoid what it alleged to represent the “windfall” profits the industry would otherwise produce.
Triple-I recently was asked to comment on two measures now before the House Committee on Financial Services. H.R. 1756, an amendment to the Fair Credit Reporting Act, would prohibit use of credit information in underwriting or pricing auto insurance. H.R. 2684 would require the Treasury Department’s Federal Insurance Office (FIO) to annually study personal private auto insurance.
Our input is summarized below.
H.R. 1756
The insurance credit score is applied to create a rate appropriate to the customer’s riskiness. These scores help insurers avoid charging high-risk customers too little and low-risk customers too much. Every dollar of discount a person with a low score receives is offset by an extra dollar of surcharge to a person with a high score.
Introduced in the late 1980s, the scores have been studied numerous times and found to be a powerful predictor of the likelihood a consumer will become involved in an accident. Concerns have been raised that the scores act as a proxy for income – a variable insurers are banned from using. Recent research finds that this isn’t the case.
Most recently, in 2019 Triple-I and the Casualty Actuarial Society produced a white paper “Insurance Rating Variables: What They Are And Why They Matter” that explains how actuaries rigorously study variables for their effectiveness and impact on the societal goal of keeping insurance available and affordable.
H.R. 2684
Under H.R. 2684, it appears FIO would be required to annually gather premiums charged and quoted from insurers that write personal auto coverage, along with rating factors, underwriting guidelines, and any information used to compile them.
This would be an enormous undertaking. There are more than 250 million private vehicles in the United States – 87 percent of them insured. But the dataset would be much larger. The proposal also asks for every quote issued to policyholders and other applicants. Each renewal policy gets at least one quote – the renewal at existing terms. Anyone who shops for insurance receives more.
Once the information is collected, the bill would require the release of each insurer’s data, rating algorithms, and underwriting guidelines to the public – including the insurer’s competitors. This would be like requiring a drug manufacturer to give up all its patents annually. Insurers would have no incentive to innovate to find, for example, variables that do a better job than the current ones because, once discovered, the variables would have to be turned over to competitors.
Car insurance premiums have risen steadily since 2009 at a faster pace than inflation, according to a recent paper in the Journal of Insurance Regulation.
Transportation is essential to opportunity in the United States. Cost of driving, therefore, isn’t a trivial issue.
When you hear a stat like that, what’s your instinctive response? To blame “greedy insurers” who are making money hand over fist and still aren’t satisfied? It might be, if you don’t follow insurance profitability trends. If you do, you know they’ve been losing money on auto insurance for years, despite increasing rates.
Rising rates have caused some to call for regulation to help make car insurance more affordable. Transportation is essential to opportunity in the United States, and most Americans rely on cars. Cost of driving, therefore, isn’t a trivial issue.
The year 2009 was the beginning of the end of the “Great Recession.” In a recovering economy, more people drive – to work, stores, restaurants, et cetera. More vehicles traveling more miles means more accidents and more insurance claims.
The insurance term for this is “frequency.” In addition to more cars on the road, the report finds, distracted driving due to use of digital devices may contribute to increased accident frequency.
In an improving economy, more cars are on the road. More vehicles mean more accidents and insurance claims. Distracted driving due to use of hand-held digital devices also may contribute to increased accident frequency.
Another key term is “severity” – the average cost of claims. Severity has been high for several reasons:
Safety and fuel efficiency are expensive. Cars are safer and cheaper to operate than ever before – thanks to sensors and computers and new materials, all of which are expensive to repair or replace after an accident. This affects loss costs, which are reflected in premiums.
Medical costs are on the rise – especially for hospitalization. The paper cites U.S. Bureau of Labor Statistics data showing that medical and auto insurance inflation growth track closely and hospital cost inflation by far outstrips both. Since many crash victims wind up in the hospital, it’s possible these costs aren’t fully reflected in insurance rates. The paper also cites research indicating that hospitals may charge insurers more than other payers.
Litigation and generous juries. The report doesn’t go into detail about litigation, but the trend known as “social inflation” – marked by growing jury awards and “litigation funding,” in which investors pay plaintiffs to sue large companies in return for a share in the settlement – is well documented.
These factors drive up rates as insurers seek a return that justifies risk taking and operational spending. Nevertheless, the report finds no correlation between rising rates and insurer profitability.
Cracking the affordability nut
Literature on insurance affordability is diverse, with little consensus on the key term. The paper cites research that strongly suggests aggressive rate regulation actually reduces affordability.
“When rate regulation suppresses costs for the riskiest insureds,” the study states, “average premiums, losses, and injuries increase.”
So, what might improve auto insurance affordability?
Some contributors to rising rates – such as repair costs – “should partially self-correct over time,” the paper says. Others, like medical costs and “non-economic” damages (pain and suffering awards) could be addressed through changes in personal injury protection (PIP) laws, antifraud efforts, transparency in medical pricing, or civil justice reform. Stricter “distracted driving” laws and improved enforcement of existing ones could help reduce losses and premiums.
Insurers are investing in technology and improved analytics to streamline their workflows, improve service, and bolster their bottom lines. Some are even discussing getting out of auto entirely – which, should it become a trend, would not bode well for affordability or availability.
ABC News in North Carolina reports that a driver in the state looked up and saw a bird carrying a huge fish.
“It was one of those slow-motion moments in life. I saw the fish and I saw him drop it,” said Rhesa Walston of Beaufort, North Carolina.
The catfish smashed straight into her windshield.
It happened so quickly she didn’t have time to react.
“There was glass all over my front seat…glass on my lap,” Walston told ABC News.
After making sure her daughter in the back seat was safe, Walston contacted her family and her insurance company. Family members tracked down the fish (apparently, catfish dropped from high altitudes bounce) and took pictures to corroborate her catch.
Walston told ABC News she will have to pay the $250 deductible on her comprehensive auto policy — not a huge price for a story the family will be telling for years to come. Animal damage is covered if you have optional comprehensive coverage. If you only have collision coverage, then you’re not covered.
Never heard of “social inflation”? It’s a fancy term to describe rising litigation costs and their impact on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage.
The number of auto glass AOB lawsuits statewide in 2013 was over 3,800; by 2017, that number had grown to more than 20,000.
While there’s no universally agreed-upon definition, frequently mentioned aspects of social inflation are growing awards from sympathetic juries and a trend called “litigation funding”, in which investors pay plaintiffs to sue large companies – often insurers – in return for a share in the settlement.
Less discussed are state initiatives that inadvertently invite costly abuse. Florida’s assignment of benefits crisis is an excellent example.
Assignment of benefits (AOB) is a standard insurance practice and an efficient, customer-friendly way to settle claims. As a convenience, a policyholder lets a third party – say, an auto glass repair company – directly bill the insurer.
Easy.
In Florida, however, legislative wrinkles have spawned a crisis.
The state’s “David and Goliath” law was meant to level the playing field between policyholders and economically powerful insurers. It lets plaintiffs’ attorneys collect fees from the insurer if they win their case – but not vice versa. If the insurer wins, the plaintiff owes the insurer nothing. This creates an incentive for attorneys to file thousands of AOB-related suits because there is no limit on the fees they can collect and no risk. Legal fees can dwarf actual damages paid to the policyholder – sometimes tens of thousands of dollars for a single low-damage claim.
AOBs are an efficient, customer-friendly way to settle claims…. In Florida, however, legislative wrinkles have spawned a crisis.
This type of arrangement is unique to Florida. And, despite efforts to contain it through reforms to the state’s personal injury protection (PIP) program, the abuse has spread beyond its origins in the southern part of the state and to other lines than personal auto and homeowner’s insurance. More than 153,000 AOB suits were filed in Florida in 2018 – a 94% increase from about 1,300 five years earlier.
Contributing to the crisis is the ease with which unscrupulous contractors can “find” damage unrelated to an insured incident or overbill for work done and file a claim. Florida statutes let policyholders assign benefits to a third party without insurer consent – which limits the insurer’s ability to monitor a claim to make sure costs aren’t inflated.
A measure signed into law by Gov. Ron DeSantisearlier this year aimed to curb AOB litigation by putting new requirements on contractors and letting insurers offer policies with limited AOB rights, or none at all. However, it excludes auto glass repairs. The number of auto glass AOB lawsuits statewide in 2013 was over 3,800; by 2017, that number had grown to more than 20,000.
Florida’s experience provides an ongoing study into how hard it can be to stuff the social inflation genie back into its bottle.
By Max Dorfman, Research Writer, Insurance Information Institute
Deer season—which usually runs from October through December—can be a dangerous time for motorists. During this period, deer are moving frequently and often cross over dangerous areas, like highways and other heavily-trafficked areas.
Indeed, between July 1, 2018 and June 30, 2019 one out of every 116 drivers had an insurance claim from hitting an animal, according to State Farm. These claims were most likely in West Virginia, with one in 38 people making an insurance claim based on this kind of accident.
With this in mind, it’s important to take precautions when driving during this period of the year. Deer often travel in groups, so it’s vital to slow down with even one deer on the side of the road. Additionally, try to brake instead of swerving if faced with a crash. Above all, be alert—there’s no substitute for prudence during deer season.
The Insurance Information Institute has Facts & Statistics on deer vehicle collisions here.
