Triple-I’s chief actuary, James Lynch, gave this talk on the changes that COVID-19 is bringing to the automobile insurance business, at the American Academy of Actuaries Annual Meeting last week.
“Thanks for inviting me to be part of such an august panel. I wanted to spend a few moments talking about what Insurance Information Institute research indicates are significant changes happening in the sector right now and what may lie ahead.
Not surprisingly, the pandemic has had an enormous influence. Triple-I estimates that insurers will return $14 billion to customers because of the dramatic decrease in driving. Even with that, most insurers have shown improved results.
A good rule of thumb is that insurers returned about 15 percent of second quarter premiums. Fast Track data show that loss costs in the second quarter were between 7 and 40 percent lower than a year earlier, depending on coverage.
A closer look at the numbers show what might be a disturbing long-term trend. Frequency was way down in every coverage, but some coverages showed disturbing spikes in claim severity. Property damage frequency was down more than 30 percent from a year earlier, but severity was up almost 20 percent. This was likely caused by faster driving.
Since the spring lockdowns have eased, customers are driving more again, but they still haven’t returned to the levels of a year ago. Right now people are driving about 12 percent fewer miles than they did a year ago.
However, there is ample evidence that drivers are still going faster than they did, particularly at rush hours. That’s why mileage driven this year is down 12 percent, but traffic fatalities are up 4 percent. The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates.
There’s good news for insurers though. Telematic information was an important reason insurers could return money quickly to their customers, and that fact seems to have brought positive attention to usage-based insurance. Research by Arity shows that 58 percent of drivers surveyed this year are comfortable with insurers monitoring distracted driving to price insurance, up from 39 percent a year ago. There were similar increases for monitoring miles driven, speed and where a person drives.
There are lots of other questions about where the industry is going, and I guess I’ll step back and let us talk about those as a group.”
Auto insurers used the decline in auto damage claims during the COVID-19 pandemic as an opportunity to refine their claims processes, and customers have noticed.
According to the J.D. Power 2020 U.S. Auto Claims Satisfaction Study, the customer services improvements have led to record-high customer satisfaction. These improvements include ensuring that representatives are always immediately available; completing work when promised; and providing multiple services at first notice of loss.
“It is extremely rewarding to see the insurance industry’s exceptional work being recognized by its most important critic: the American consumer,” said Sean Kevelighan, CEO, Triple-I. “During the pandemic, the nation’s auto insurers have worked non-stop to provide relief and economic security to policyholders who had to file a claim. This is in keeping with their role as society’s financial first responders,” he said in a Triple-I news release.
Key findings of the J.D. Power study include:
Record-high customer satisfaction with auto claims: Overall satisfaction with the auto insurance claims process increases to a record-high 872 (on a 1,000-point scale), up four points from 2019. This is the third consecutive year of improvement in auto claims satisfaction, which has been driven by increases in performance across nearly every factor measured in the study: claim servicing; estimation process; repair process; rental experience; and settlement. The only factor that has not improved year over year is first notice of loss, which remains flat from 2019.
Cycle time improves as claims volume slows: Auto insurers have upped their game during the pandemic, taking advantage of the drop in frequency to increase the speed of processing for claimants. Overall cycle time for claimants with reparable vehicles has improved to just 10.3 days during the pandemic, down from the pre-virus average of 12.6 days.
Quantifying the COVID-19 boost: This year’s study was fielded in four waves from November 2019 through September 2020, giving J.D. Power the ability to compare pre-virus levels of customer satisfaction with those experienced during the pandemic. Notably, the number of claimants who say they “definitely will” renew with their existing insurer is 76% during the pandemic versus 72% pre-virus.
Use of direct repair program (DRP) shops improves satisfaction: The industry’s growing use of directly affiliated repair shops is paying off with a significantly higher overall satisfaction score (888) than for independent repair shops (844). This is driven by quicker cycle times among DRP shops and regular updates on progress.
“The sharp decline in claims volume during the pandemic has served as a test case for the industry in how to make improvements in service delivery that translates directly to increased satisfaction and increased intent to renew,” said Tom Super, head of property and casualty insurance intelligence at J.D. Power. “This is important because it demonstrates that efforts to improve claimant service delivery translates directly to improved business outcomes. The challenge now, of course, will be maintaining that high level of service as claims volumes start to normalize.”
Given the reduced mileage on U.S. roadways this year, U.S. auto insurers are also returning over $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to a Triple-I estimate.
Policyholder dividends have more than tripled so far this year, due largely to approximately $14 billion auto insurers have returned to policyholders in response to reduced driving and fewer accident claims related to the COVID-19 pandemic.
According to National Association of Insurance Commissioners (NAIC) data from Standard & Poor’s Global Market Intelligence, insurers issued $4.8 billion through the second quarter of 2020, almost $3.4 billion more than the same period a year ago. The bulk of that, $3.3 billion, is a result of pandemic-related driving patterns.
Insurers in the first half also booked $4.7 billion in credits through lower rates, and another $1.6 billion was booked as an underwriting expense, according to a Triple-I analysis of industry results.
In the second half of the year, Triple-I projects, insurers will return to customers another $338 million in dividends. Rate decreases of $4.1 billion will make up the remainder of the $14 billion in givebacks.
State Farm, the country’s largest auto insurer by premiums written, in April announced a $2 billion dividend to its auto insurance customers, averaging a 25 percent credit on these customers’ premiums through May 31. Combined with the premium credit and an 11 percent reduction in premium rates, the company said, these initiatives will save customers $4.2 billion through the end of 2020.
USAA, through a series of three dividend announcements, has returned $1.07 billion to auto policyholders and said it also is adjusting its rates.
On top of these, the industry has provided approximately $280 millionin charitable giving specifically related to the pandemic.
Dan and Ben, ready for a safety-conscious Halloween last year.
My five-year-old nephew, Ben, is a great source of pride to his electrician father, Dan. Last Halloween, Ben refused to trick-or-treat at a particular house because he noticed that the decorations there were a fire hazard.
Halloween is supposed to be fun, but it has always involved risks and potential liabilities. The video below outlines some of the “traditional” hazards and ways to mitigate them, from eliminating trip-and-fall dangers to preventing fire and pet-related perils.
And while much of the focus of Halloween-risk mitigation is on the home, Donald R. Grady, a Boston personal injury attorney, says the biggest dangers actually involve cars.
“You see an uptick in automobile accidents,” Grady says. “Especially with teenagers, who don’t have adults with them and who rush from house to house.”
The curse of 2020
2020 has aged us all….
Perhaps predictably by now, 2020 has brought the spooky holiday threats of its own. COVID-19 has introduced new Halloween concerns.
The Centers for Disease Control and Prevention (CDC) has published a list of low-, moderate-, and high-risk Halloween activities for a time of pandemic.
Lower-risk activities include:
Carving or decorating pumpkins with members of your household and displaying them
Carving or decorating pumpkins outside, at a safe distance, with neighbors or friends
Decorating your house, apartment, or living space
Having a virtual Halloween costume contest
Having a Halloween movie night with people you live with.
Moderate-risk activities include:
Participating in one-way trick-or-treating, where individually wrapped goodie bags are lined up for families to grab and go while continuing to social distance
Having a small group, outdoor, open-air costume parade with people distanced more than 6 feet apart
Attending a costume party held outdoors, where protective masks are used and people can remain more than 6 feet apart.
The CDC provides caveats and additional guidance for these and other moderate-risk activities, so if you’re even thinking about them, definitely read the relevant guidance. It advises against the following:
Traditional trick-or-treating where treats are handed to children who go door to door
“Trunk-or-treat,” where treats are handed out from trunks of cars lined up in large parking lots
Attending crowded costume parties held indoors
Going to an indoor haunted house where people may be crowded together and screaming
Going on hayrides or tractor rides with people who are not in your household
Using alcohol or drugs, which can cloud judgement and increase risky behaviors
Traveling to a rural fall festival that is not in your community if you live in an area with community spread of COVID-19.
For a variety of reasons, many people have moved during the pandemic. One in five U.S. adults either changed residence due to the pandemic or know someone who did, according to a Pew Research survey. There are many safety factors to consider if you are moving, and it’s also important to understand how insurance protects your possessions before, during, and after a move.
Loretta Worters, Vice President Media Relations, Triple-I, has put together this comprehensive explanation of how insurance covers you when you move.
What’s Covered/What’s Not
Homeowners and renters policies provide coverage for belongings while they are at a residence, in transit, and in storage facilities — but they will not pay for any damage done to personal property while being handled by movers when packing or moving the items.
Types of Coverage to Consider When Moving:
Trip transit insurance covers personal property for perils including theft, disappearance, or fire (the same perils covered by homeowners or renters policy) while in transit or storage. Trip transit insurance can be written for the full value of the property or as excess coverage over and above that provided by the moving company. It does not, however, cover breakage or flooding at, say, a storage facility.
Special perils contents coverage will cover breakage of all but fragile items.
A floater will fully protect high-value items, such as jewelry, collectibles, fine art, etc.
Storage insuranceis also important should someone need to temporarily or permanently store items before or after a move.
Coverages Available Through Moving Companies
The type of liability coverage a moving company offers for damage or breakage is not technically insurance and therefore is not governed by state insurance laws. Under federal law, however, all interstate movers must offer two different liability options—full-value protection and released-value protection. Most movers offer both options for intrastate moves, as well. It’s important to understand the various types and levels of protection available and the charges for each option.
Full-value protection is a plan under which the mover is liable for the replacement value of the belongings in a shipment. If personal property is lost, destroyed, or damaged while in the mover’s custody, the company will repair or replace the item or make a cash settlement for the cost of the repair or the current market value. The cost for full-value protection liability coverage varies by mover; different deductibles are available, which will reduce or increase the price. Note that full value liability is more expensive and is the default.
Released-value protection is offered at no additional charge beyond the moving fee. However, it provides only a minimal protection—no more than 60 cents per pound per article. So if the mover loses or damages a 10-pound stereo component valued at $1,000, the homeowner would only receive $6.00 in compensation (60 cents x 10 pounds).
Separate liability coverage may be offered by a mover to augment released-value protection for an additional fee. If this extra coverage is purchased, the mover remains liable for the amount up to 60 cents per pound per article, but the rest of the loss is recoverable from the insurance company up to the limit of the policy purchased. The mover is required to issue and provide a written record of the policy at the time of purchase.
Check Professional Mover’s Agreement
Homeowners should review the mover’s contract and ability to:
Determine exactly what kind and how much coverage the moving company provides for property loss and/or damage.
Review the contract carefully for the estimated value of your possessions and match it to the homeowner’s list. An up-to-date home inventory will make this task easier.
Find out the maximum value of the mover’s insurance should goods be damaged.
Check that the moving company’s policy includes coverage for damage done to the homeowner’s premises—both the house they are leaving and the one being moved into.
Know what the time limits are for filing claims with the mover and decide whether they are reasonable—take time to unpack and check for potential damage.
Moving Yourself If you choose to move yourself, you won’t have the benefits of a moving company’s coverage if belongings are damaged or broken. To be protected:
Consult with an insurance professional and review the trip transit, special perils, and floater options.
Buy the optional collision damage waiver coverage from the rental company if renting a truck. Collision and comprehensive coverage likely will not transfer to a non-owned moving van, only to a private passenger vehicle.
New Home, New Insurance
If moving to a new state, or even from a city to a suburban area, a new home insurance policy will be needed. That’s because a new home is a different property with different risks, which means different coverages may be required. The cost of the policy also may vary. For example, a larger home in a coastal area will likely be more expensive than a small apartment in an inland city.
When buying a new home, consider insurance costs. Rates are based on many factors, including square footage, geographical area (is the home in a flood, earthquake or hurricane-prone area of the country?); the age and construction of a home (is it brick or wood shingle?); roof condition; proximity to a fire station; and credit history. Notify the insurer about a new address and make sure to inquire about possible savings on home and auto premiums for features like a shorter commute, a gated community, or lower-crime area than previously, alarms, or other security systems.
The same holds true for car insurance. That’s because a new state may have different requirements or factors that result in a different policy cost. Even if moving within the same state, insurance carriers should be notified to ensure policies are up to date.
In-State vs. Out-of-State
An out-of-state move can have big implications, because not all insurance agents or companies are licensed to write policies in every state. Insurance requirements may also vary across state lines Call your agent to see if the current company can write policies in the state they are moving to. If not, consider it an opportunity to shop and compare new policies.
When to Make the Switch
In most cases, the new owner will need to have proof of insurance at closing when buying the new home. An insurance agent should be notified well in advance of closing and providing a timeline for the move so coverage is in place at the appropriate time. Depending on the insurer, coverage on the former home will generally remain in effect until the sale of the property is complete, as long as premiums are paid, which should be confirmed with the insurance agent.
Vacant Homes
If the homeowner relocates before the existing home is sold and it remains vacant or unoccupied, there may not be coverage under the existing homeowners policy. Insurers typically discontinue coverage on a home if it has been unoccupied for more than 30 days, so prospective homeowners should explore other options with their insurer.
By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute
The U.S. Energy Information Administration (EIA) publishes extensive data on petroleum production, refining and supplies to users, with some data provided on a weekly basis. Gasoline supplied to retailers is not quite the same as gasoline consumed but it is close. And gasoline consumed is not exactly the same as miles driven but it is close. Consequently these data can indicate how much people are driving, sooner than we get data on the frequency and severity of collisions. Still, one benefit of tracking these data is that they are published in a timely way.
As a baseline, consider gasoline supplied in the first 12 weeks of 2020, compared to the comparable weeks in 2019 (Figure 1). Although this comparison can be affected by changes in prices from year to year as well as changes in weather (and possibly other differences between the two periods), we can assume that these differences are small and do not obscure longer-term trends.
The graph shows some week-to-week variation, but basically the same—or maybe a little less—gas supplied in 2020 vs. 2019.
Then the pandemic—and the start of the recession caused by fighting it—happened. Driving was sharply curtailed, and auto insurers instituted programs for refunding premiums to reflect this change. Figure 2 adds to Figure 1 the percentage change in year-over-year supplies of gas for the rest of March and all of April 2020.
But in May some states began relaxing various restrictions, and driving began to return to near-pre-pandemic/recession levels, as Figure 3 shows.
At this point there is no way to know what caused this spike in gas usage, but some speculate that any or all of the following could be responsible:
• States are moving to more permissive stages of lockdown, resulting in more travel, especially to beaches and other outdoor activities
• People who once took public transportation are now choosing to drive, thereby lessening exposure to the virus that might result from travel on mass transit
• Warmer weather months are traditionally a time for more driving
• The price of gas continues to be unusually low, making driving less burdensome than the prior year.
Today marks one year when my car got flooded, I got stranded, and I learned a huge lesson: I call it my floodiversary.
We keep a small saltwater tank, and to keep the tank healthy, it needs regular water changes. Before the Fourth of July weekend I decided to swing by the local fish store and pick up 5 gallons of water to replenish the tank. That way I could get the chores out of the way in order to relax and enjoy the rest of the holiday weekend.
I got to the store in time and picked up a five-gallon industrial container. I put it in the back, put the hatch down and started the 30-minute trip home. About halfway there, I made a turn. That’s when the trouble started. The car began to lose power. Fortunately I was able to pull over. I tried to start the car. Nothing. A new car…why? Then it occurred to me: the %$@*& water. I went to the back, opened the hatch and sure enough, my trunk had about an inch of water gently sloshing back and forth. I started to try and scoop the water out with the bucket, but it was impossible.
I went back to the car, got in and left the door open and started to assess my options. It was sweltering–about 90 degrees; I was in the middle of nowhere and had spotty cell service. I let my family know where I was and tried to connect to my car’s emergency system. After many tries and fails, and even speaking to an engineer, it was clear the car was not going to start up again. So I waited for the tow truck and my husband, as I swatted mosquitoes and thought about cold drinks and air-conditioning.
The tow truck arrived from the dealership, but the guy was in a hurry. He refused to let me ride back with him, but it was a war of wills. I was determined not to be left on the side of the road, so I stalled by asking him questions until my husband pulled up. We both watched as the car was raised on the flatbed, with water streaming out the back. It was a holiday weekend, so the car would have to sit on the lot in the heat all weekend. My husband had brought a stack of towels, so we did what we could. We looked at each other. No more water in the car.
On the ride back home I called my insurer. They couldn’t do much over the weekend but would be back in touch after the holiday. The next week I got the call. After the deductible was met, the damage was all covered—about $4,500 all in. My insurance also covered the cost of a rental car. The adjuster assured me the car would be fine; it turns out the water had shorted out a panel located in the trunk of the car that connected to its “brain.” But after the ordeal, it was a relief to know the car would be ok and ready to drive after a few days. The adjustor had been pleasant and helpful. “I got to tell you,” he said, “I’ve seen flooding before. But I’ve never seen a car flooded from the inside.”
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.
