COVID-19’s Impact on Personal Auto Insurance
The majority of insurers have rolled out premium relief programs as a response to COVID-19. In fact, the estimated volume of credits and refunds topped $7B in April, according to the Consumer Federation of America. But how do these programs really compare against each other and the state of driving?
There’s a substantial variance in the size, timeline, and structure of relief packages. Aside from State Farm (16% market share in 2019; 28% of relief effort), the 10 largest carriers are rolling out programs that are roughly in line with their market share. Despite this, these carriers are projected to offer between $25 and $70 in refunds or credits (based on a $100 monthly premium) between March and July (see Figure 2.). With the exception of Geico, none of the largest players have publicized plans to extend relief past June (see Figure 2.). The incongruity across these short-term relief programs suggests a lack of consensus on how driving behavior has been impacted by COVID-19.
* Geico discounts only apply to renewals and new policies between April 8th and October 7th.
This is further substantiated by the fact that the packages offered are not proportional to the changes in personal driving. Based on a statement from AllState, driving is down 50% in the first week of April. By contrast, the largest carriers are offering an average 12% discount or refund on premiums in the month of April (see Figure 2.). And while the frequency of crashes has fallen, those still on the road are exhibiting riskier behavior: highway safety officials across the country are experiencing a dramatic surge in speeding and severe accidents.
And this is just a reflection of today’s market; driving in the post-pandemic economy may look different. In fact, according to a survey conducted by J.D. Power, 57% of customers expect to drive less even after stay-at-home orders are rolled back. As the pandemic trails deeper into Q2, and potentially Q3 and Q4, carriers will need a more permanent solution than costly refunds. This solution must empower them with 1) finer-grained telematics data to better understand actual utilization and 2) the financial flexibility to enact changes rapidly.
Usage-based insurance (UBI) is the strongest contender because it can be used to quantify risk exposure and generate tailored rates over shorter intervals. In tandem, there’s reason to believe that consumers are primed for large scale adoption: in the same J.D. Power survey, 40% of respondents expressed a renewed willingness to use UBI. Given the financial uncertainty in the market, carriers must act now.
The team at Mobikit is building data tools to allow carriers to rapidly assess risk using telematics data and adapt to changing market conditions. Here are just a few ways we can help you navigate uncertainty:
- understand your risk exposure through driving utilization;
- segment your insured population in near-real time based on actual vehicle behavior;
- identify new patterns of vehicle use based on 3rd party data (e.g., traffic, health mandates).
The market dynamics amid COVID-19 reinforce the need for granular data on ridership. Telematics infrastructure is critical because it allows you to understand how your insured population is reacting to these trends.
Want to learn more? Reach out to us at hello@mobikit.io!
