The insurance industry can meet its obligations to policyholders in the midst of the coronavirus pandemic – but government interventions being discussed threaten to unravel this safety net and could make it impossible for insurers to affordably provide essential coverage in the future.
These are among the conclusions shared by Triple-I chief economist Steven Weisbart and senior economist Michel Léonard in a briefing today that explained how the industry already has been affected by the pandemic and subsequent recession; how policyholder surplus ensures funds are available to cover claims; and how any attempt to retroactively apply this pandemic to business interruption policies would cause irreparable harm to the financial stability of the property-casualty insurance industry.
“Insurers price their policies for expected claims, with additional monies set aside for unexpected claims, such as those which are filed during exceptionally severe hurricane seasons,” Dr. Weisbart said. “The policyholders’ surplus backs up every line of insurance each insurer writes. It is calculated as assets, minus liabilities, and rises and falls due to changes in asset values.”
Dr. Weisbart and Dr. Leonard explained in detail how surplus works and showed how – under a variety of plausible scenarios – retroactively rewriting insurance contracts could make it impossible for insurers to play their critical role as financial first responders.
“If insurers nationwide had to pay business interruption policy claims for which they collected no premium, it could cost the industry each month anywhere from roughly $150 billion to nearly as high as $380 billion,” said Léonard, noting that the smaller amount accounted for the U.S.’s small and medium-size businesses that currently have business interruption coverage and the larger amount includes those who do not. “Pandemic-caused losses are excluded from standard business interruption policies because they impact all businesses, all at the same time.”
As car insurers help their
customers cope with the pandemic’s economic impact through premium refunds and other relief measures and some groups complain the
efforts are insufficient and ask regulators to make insurers pay more, it’s
worth noting that the cost of insuring motor vehicles has grown more slowly than inflation over the
past 12 months and well below prices for hospital services and car repairs –
two key drivers of car insurance claims.
As the chart below shows,
year-over-year increases in auto insurance prices have trailed growth in the Consumer
Price Index, the most widely used measure of inflation.
“Auto premiums are kept relatively low by competition among insurers,” explained Triple-I chief economist Steve Weisbart. “This has been happening even as two major contributors to claims have grown much faster. In the case of hospital services, prices have not just been rising – growth has been accelerating since last July.”
You read that right. Even as two of the biggest contributors to claims – the money insurers pay policyholders after accidents – have grown faster than inflation, the prices policyholders pay for coverage have grown more slowly than consumer prices generally.
Many factors come into play when an insurer determines an
individual’s premium
payment – age, driving record, where and how far one generally drives, and
much more; and, let’s face it, no one likes to pay for insurance or to see
their payments go up.
But think about it: even though you might roll the dice if
your state didn’t require you to have insurance, would that really be a wise
move? Would you really want to be on the hook for the full cost of damage to
your car or that of another driver? Or for the liability associated with someone’s
injury or death?
That premium payment provides an awful lot of value in terms
of peace of mind – IF you think about it.
And, if you think further about it, you have more control over how much
you pay for car insurance than you do over other products and services. You can shop around. You can change how much
or what type of coverage you buy. You can bundle auto with other coverages. You
can get fewer tickets and improve how you handle your credit.
And as usage-based
insurance, powered by telematics, gains traction, your options will only increase.
Compare this with, say, cable and satellite TV. Your ability
to shop around is quite limited (though improving with each new streaming
opportunity that comes online). The products you really want come bundled with
others you would never pay for if you had a choice.
And the prices of these services, as the chart below shows,
continue to grow at rates well above both CPI and car insurance.
Most Americans are
under stay-a-home orders at this stage of the coronavirus pandemic, and stress is
running high for myriad reasons.
The pandemic has
affected pets too. “Dogs that are used to kids being at school and adults at
work are now finding themselves surrounded by their families 24/7,” according
to Victoria Stilwell, CEO of Positively.com and the Victoria
Stilwell Academy of Dog Training and Behavior. “Most welcome the company, but some dogs are having a hard
time adjusting to the constant noise, attention and lack of space,” said
Stilwell.
In some cases,
dogs will exhibit anxious, aggressive, or destructive behaviors.
The National Dog
Bite Prevention Week Coalition offers the following tips to help you and your
pets cope while sheltering at home:
Create a den-like space or “safe
zone” in your home that is a “dog only” zone. This can be a crate where the
door always remains open or a quiet location your dog can go to when it needs
some space.
Small children should be supervised
around any dog. To make it easier, you can use baby gates to keep dogs and kids
separated if you can’t actively supervise them.
This is the time to teach your dog
some new skills. Challenge your dog to learn new cues. If you need the help of
a trainer, many now offer virtual consultations.
If you can take your dog out for a
walk, make sure you keep it on leash. Do not allow your pet to socially
interact with other dogs or people. While humans are observing social
distancing rules, they should help their dogs do the same.
Having a plan in place for your pets
is important. Individuals who become too sick or require hospitalization will
need to have someone to take care of their animals while they heal. Just like
any disaster preparedness plan, have a “bug out” bag ready.
Members of the National Dog Bite Prevention Week Coalition will share information during several webinars this week focused on how COVID-19 is impacting pets and pet owners. Experts will provide safety tips for sheltering at home with dogs, how to support animal shelters and rescues, and release 2019 dog-related injury claims data.
The Next webinar
will take place on Friday, April 17 at 1:00 PM CST/2:00 PM EST
In a previously recorded webinar,Janet Ruiz, Strategic Communications Director, Triple-I, explained that when it comes to dog bite claims, it’s important to note that these are just incidents that were reported to insurance companies and that the actual number of dog bites is likely to be much higher. In 2019 homeowners insurers paid about $796.8 million as a result of 17,802 dog bite claims.
National Dog Bite Prevention Week (NDBPW) is April 12-18, 2020. Members of the
National Dog Bite Prevention Coalition include the American Veterinary Medical
Association (AVMA), State Farm®, Insurance Information Institute (Triple-I),
American Humane, and the Victoria Stilwell Academy for Dog Training and
Behavior. The coalition joins forces each year to draw attention to how people
can reduce the number of dog bites.
The coronavirus crisis is taking a toll on the U.S. legal system as courts are restricting access and altering procedures. Dentons, a global law firm, addressed the impact of COVID-19 on ongoing cases in a recent webinar led by Michael Duvall, Partner; David Quam, Counsel; and Kelly Graf, Managing Associate.
Litigators have ongoing responsibilities to their clients to keep up with key deadlines, during the “slowdown.” These responsibilities include keeping them informed of scheduling, continuing to meet filing deadlines, and advocating for the clients’ interests. Judges have significant discretion to keep their cases moving along.
The webinar covered some of the litigation risk facing businesses with “enterprising” plaintiff’s lawyers actively looking for clients. The risks include data breaches arising from remote workers using unsecured home computers to access confidential data; safety and compliance issues related to remote work; exposure to the virus by employees who are not working remotely; event cancellation; claims of false or misleading advertising against companies capitalizing on demand for products like hand sanitizer; and price gouging.
Dentons has put together a 50-state tracker
that it’s maintaining of coronavirus-related orders, directives, financial
assistance, health and business directives, and updates on court and
legislative sessions.
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.”
