Strange but true: Auto insurance relies on people driving.
COVID-19 plunged the car insurance industry into an anxious state of uncertainty when it hit the United States in Q1 of 2020. Would shutdowns harm business? What were the secondary effects? What about the thousands of vehicles now parked for weeks or months without being driven?
Many insurers supported their customers by offering refunds and discounts on their premiums (Adriano). After all, drivers drove 40.2% fewer miles in April 2020 than in previous Aprils and 25.5% less in May (Shilling et al.). In fact, insurance companies appear to have benefitted financially during this early lockdown period. Less driving meant fewer accidents, which in turn meant fewer payouts on the part of insurers. This translated to a better Q2 than Q1 for 2020 (Grzadkowska).
However, longer-term effects soon began to solidify. As a result of the continued pandemic, new 2020 auto insurance premiums could drop by 6.2% and 3.5% for personal and commercial auto, respectively (Shilling et al.). This could mean a steady decline in new policies, as well as additional rounds of refunded premiums.
Much remains uncertain. With the late autumn spikes of COVID-19 many times more severe than early 2020, continued economic shutdowns seem possible. Premiums are likely to take time to return fully to pre-COVID-19 levels, particularly with remote work becoming part of the new normal. People with lower income and credit scores are less likely to go shopping as they might have before the pandemic. For many, realities are forcing them to forego insurance entirely.
Auto insurance refunds have had a positive effect. For many drivers, the concept of receiving a refund for not driving has favorably altered their opinion of auto insurers and even spurred further shopping for policies.
Gen Z and millennials, many of whom do not own homes or significant properties and therefore prefer simpler policies, are also more agile in shopping for new policies. They also favor cheaper policies due to being less financially comfortable than older Americans (Bialik and Fry). Throughout the pandemic, the number of younger policy shoppers initially spiked then dropped off.
Deloitte recommends that auto insurers base decision-making on robust data analytics and focus on transforming their cost structures. Another important consideration will be maintaining favorable reputations among consumers due to the variety of premium relief provided by different insurers.
The pandemic has certainly been a wild ride so far for auto insurance — it will be interesting to see what the coming months bring.
- Adriano, Lyle. “Consumer Advocate Petitions CA Auto Insurers to Lower or Refund Premiums.” Insurance Business, 25 Mar. 2020, www.insurancebusinessmag.com/us/news/breaking-news/consumer-advocate-petitions-ca-auto-insurers-to-lower-or-refund-premiums-217920.aspx.
- Shilling, Mark, et al. “The Path Ahead.” Deloitte Insights, www2.deloitte.com/us/en/insights/economy/covid-19/covid-19-financial-services-sector-challenges.html.
- Grzadkowska, Alicja. “COVID-19’s Impact on the Auto Insurance Industry and Its Clientele.” Insurance Business, 30 Sept. 2020, www.insurancebusinessmag.com/us/news/breaking-news/covid19s-impact-on-the-auto-insurance-industry-and-its-clientele-234924.aspx.
- Bialik, Kristen, and Richard Fry. “How Millennials Compare with Prior Generations.” Pew Research Center’s Social & Demographic Trends Project, 2 Mar. 2020, www.pewsocialtrends.org/essay/millennial-life-how-young-adulthood-today-compares-with-prior-generations/.