The Impact Of Covid-19: Auto And Home Insurance Trends And Shifts

The COVID-19 pandemic has had a significant impact on the auto and home insurance industries. With people driving less during lockdowns, insurance companies have offered customers refunds, discounts, and extended grace periods. The pandemic has also caused a shift towards usage-based insurance (UBI) and accelerated the adoption of digital channels and telematics. COVID-19 has also affected insurance companies' investments, finance, underwriting, claims, and actuarial functions. The full impact of the pandemic on the industry is still uncertain, but it is expected to continue influencing claims and premium trends in the coming months and potentially years.

Discounts and refunds

The COVID-19 pandemic has had a significant impact on the auto and home insurance industries, with many companies offering discounts and refunds to their customers. Here are some examples of how insurance companies have provided financial relief to their policyholders during the pandemic:

• Liberty Mutualrefunds of 15% to personal auto insurance customers on two months' worth of premiums.
• State Farm: Introduced the Good Neighbor Relief Program, providing a dividend/credit to auto insurance customers. In total, the company returned approximately $4.2 billion in savings to its customers through this program and by cutting auto rates across every state.
• Progressive Insurance: Gave customers a 20% credit for their April and May 2020 premiums.
• Allstate: Introduced the Shelter-in-Place Payback program, giving over $1 billion back to auto insurance customers in 2020.
• Geico, Liberty Mutual and Progressive: Also offered similar refund programs to Allstate.
• State Farm (Business Insurance): Reduced business owner premiums across the country by an average of 7%, saving commercial policyholders $54 million.

In addition to these refunds and discounts, many insurance companies also offered extended grace periods, waived late fees, and provided other forms of financial relief to their customers during the pandemic. These measures helped to ease the financial burden on individuals and businesses during a challenging economic period.

Usage-based insurance

The Covid-19 pandemic has had a notable impact on the auto insurance industry, with many people driving less frequently or not at all. This has led to a sharp increase in usage-based insurance (UBI) policies, where premiums are based on driving habits and mileage. UBI policies were already gaining traction before the pandemic, but the shift towards remote work and reduced commuting has accelerated this trend.

UBI policies offer a more tailored approach to insurance, with rates determined by how often and how safely an individual drives. This is in contrast to traditional insurance, which uses factors such as age, location, and motor vehicle reports to calculate risk. With UBI, safe drivers can benefit from discounted premiums, while riskier driving habits may result in higher rates.

During the pandemic, some insurance companies offered refunds or discounts to customers who were driving less. For example, Liberty Mutual offered refunds of 15% to personal auto insurance customers on two months of their auto premiums, while State Farm gave $2 billion in rebates to customers with auto insurance policies between March and May. These refunds highlighted the potential benefits of UBI policies, which can provide fairer rates for customers based on their actual driving behaviour and mileage.

UBI policies can be monitored through plug-in devices or mobile apps that track driving habits such as hard braking, rapid acceleration, speed, distracted driving, and phone use. This allows insurance companies to incentivise safer driving and provide feedback to help drivers improve their habits. However, there are also privacy concerns associated with UBI, as insurance companies collect and store data on customers' driving behaviour and location.

While UBI policies can offer significant savings, they may not be suitable for everyone. For example, individuals who regularly use their phones while driving or feel uncomfortable with the level of data sharing may prefer traditional insurance policies. Additionally, UBI policies may not always result in lower rates, especially for high-risk drivers.

In conclusion, the Covid-19 pandemic has accelerated the shift towards usage-based insurance, as individuals sought more flexible and fair insurance options. UBI policies offer a more personalised approach to insurance, rewarding safe driving habits and providing an opportunity for significant savings. However, privacy concerns and the potential for higher rates for riskier drivers are important considerations for individuals contemplating UBI policies.

Changes to driving behaviour

The COVID-19 pandemic has had a significant impact on driving behaviour, with city streets becoming empty as many countries went into lockdown. The number of car trips decreased dramatically, with a 40% drop in the number of trips and kilometres travelled. This reduction in driving led to a lower frequency of accidents overall, but cities may have seen higher frequencies due to increased speeding as a result of less congestion.

Some insurance companies offered discounts or refunds to their customers in light of the reduced driving during the pandemic. For example, Liberty Mutual offered refunds of 15% to personal auto insurance customers on two months of their auto premiums, while Progressive Insurance customers received a 20% credit for their April and May premiums. State Farm also gave customers $2 billion in rebates for those with auto insurance policies between March 2020 and May 2020.

The pandemic has also brought to light the need for Usage-Based Insurance (UBI), which takes into account how much a customer drives (Pay As You Drive, PAYD) and their driving behaviour (Pay How You Drive, PHYD). This is particularly important as "fewer cars" does not mean "lower risks", and insurance companies need to reflect this risk level into their customers' premiums.

In the post-COVID-19 era, it is expected that there will be a boost in new and second-hand car sales as more people opt for private transportation over public transport to reduce the chance of infection. This shift towards private cars may result in a higher risk on the road due to an increase in less-experienced drivers.

To manage these post-COVID-19 risks, insurance companies can utilise data-driven UBI programs that take into account transport mode classification, driver/passenger detection, and driving behaviour insights. By incentivising safer driving, insurance companies can better manage their risks and provide cheaper premiums to customers.

Impact on property and casualty insurance

The COVID-19 pandemic has had a significant impact on the property and casualty (P&C) insurance industry, affecting claims and premium trends, and this impact is expected to continue in the coming months and possibly years.

Impact on Actuarial Teams

Actuarial teams will be tasked with quantifying the financial impact of COVID-19 on P&C insurance companies and their clients. They must consider the micro and macroeconomic effects of the pandemic when pricing and reserving, reorganizing segmentations, utilizing techniques that account for changing frequency and severity trends, and closure patterns.

Changes in Driving Behaviour

The pandemic has led to a decrease in the number of car trips and kilometres driven, with more people working from home and avoiding public transport. This has caused people to question why they are paying for car insurance if they are not driving. Some insurance companies have offered discounts or refunds to customers, with some US companies offering refunds of up to 20% on premiums.

Usage-Based Insurance (UBI)

The COVID-19 crisis has emphasized the need for Usage-Based Insurance (UBI), which is determined by how much a customer drives (Pay As You Drive, PAYD) and their driving behaviour (Pay How You Drive, PHYD). This type of insurance can help ensure fair rates for customers and encourage safer driving.

Claims Resolution

Social distancing measures have resulted in claim resolutions relying more on digital technologies such as photo and video estimating tools. However, these may not capture all the details of a complex accident, and more sophisticated mobile telematics solutions may be required.

Post-COVID-19 Impact

In the post-COVID-19 world, it is predicted that there will be an increase in the use of private cars and a decrease in the use of public transport, as people seek to reduce their risk of infection. This could lead to a boost in new and second-hand car sales and an increase in the number of less-experienced drivers on the road, potentially leading to higher risks and more accidents.

Preparing for Future Pricing

The impact of COVID-19 on P&C insurance policies is expected to continue evolving. Actuarial teams will play a crucial role in preparing for future pricing by analyzing the financial impact of the pandemic and making data-driven decisions.

Changes to working practices

The COVID-19 pandemic has forced insurance companies to adapt and change their working practices. With many employees working from home, insurance companies have had to adapt to providing additional coverage. Some companies have offered refunds or discounts to customers, with some US companies offering refunds of up to 20% on two months of auto premiums. This is a quick fix to an unusual situation, but it has raised questions about the fairness of insurance rates.

The pandemic has highlighted the need for Usage-Based Insurance (UBI), which takes into account how much a customer drives (Pay As You Drive, PAYD) and their driving behaviour (Pay How You Drive, PHYD). This would allow insurance companies to create a personalised insurance package for each customer. For example, if a customer is driving less, their insurance rates could be lowered. However, this solution is not without its challenges, as simply reducing rates based on mileage may not be sufficient to model the risks on the road. Driving behaviour is also an important factor in determining insurance rates, as fewer cars on the road does not necessarily mean lower risks.

To address these challenges, insurance companies can utilise digital technologies such as photo and video estimating tools to assess claims. Additionally, sophisticated mobile telematics solutions can provide real-time crash detections and detailed reports by analysing motion sensor data and associated contexts. These technologies can help insurance companies find clues to the cause of an accident and resolve claims faster.

The pandemic has also accelerated the adoption of digital channels and increased the use of virtual meetings, video chatting, and online transactions. Insurance companies may need to rethink their operating models and build a more efficient, resilient infrastructure that incorporates more remote work and lower commercial real estate costs.

Overall, the COVID-19 pandemic has had a significant impact on the working practices of insurance companies, leading to changes in coverage, rates, and the utilisation of digital technologies.

Frequently asked questions