COVID-19's Impact on Auto Insurance: A Deep Dive into the Numbers

The Pandemic's Immediate Impact on Auto Insurance

The COVID-19 pandemic has significantly altered the landscape of the automobile insurance industry. According to the Insurance Information Institute (Triple-I), insurers are expected to return approximately $14 billion to customers due to the dramatic decrease in driving. This reduction in driving has led to a decrease in claims, allowing insurers to show improved results despite the economic downturn. 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 Claim Severity and Frequency

While frequency of claims has decreased across all coverages, some coverages have shown disturbing spikes in claim severity. For instance, property damage frequency was down more than 30 percent from a year earlier, but severity was up almost 20 percent. This increase in severity is likely due to faster driving, which has been observed as a trend during the pandemic. As lockdowns have eased, customers are driving more again, but they still haven't returned to the levels of a year ago. Currently, people are driving about 12 percent fewer miles than they did a year ago. However, traffic fatalities have increased by 4 percent, indicating that while mileage has decreased, driving speeds have not.

The Future of Auto Insurance: Usage-Based Insurance and Telematics

The pandemic has also accelerated the adoption of usage-based insurance (UBI) and telematics. Telematic information was crucial in allowing insurers to return money quickly to their customers. 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. This shift towards UBI and telematics could be a game-changer for the industry, offering more personalized and accurate pricing models.

In conclusion, while the pandemic has brought significant changes to the auto insurance industry, it has also opened up new opportunities for innovation and customer engagement. For consumers, it's important to stay informed about these changes and consider usage-based insurance options that could offer better rates based on individual driving habits.