Cedric Stephens | COVID-induced auto premium giveback

ADVISORY COLUMN: INSURANCE HELPLINE

QUESTION: Are motorists likely to see a drop in their premiums as a result of fewer claims due to COVID-19? From my observations around Kingston and St Andrew, there are fewer vehicles on the roads. This is very noticeable especially during peak hours. Fewer vehicles mean fewer collisions, fewer injuries and payouts for claims and more profit for insurance companies. Shouldn’t consumers be getting a premium rebate during these difficult times?

− J.B., Kingston 8

INSURANCE HELPLINE: Your comments about the reduction in the number of vehicles on our roads echo those of Donna P. Hope. She writes for this paper’s main rival. On March 19 she penned the following words: “As the coronavirus advances, Kingston's bustle is being transformed into varying degrees of silence that gets earlier each night. The significantly reduced numbers of people and cars on the streets every day, and the near-zero cars on the road at nights tell their own story”.

I conducted a crude and informal survey to find out whether there were fewer vehicles using our roads as a result of the new government rules to limit the spread of the virus. They include a limit of the number of persons present in public spaces, working from home and a daily 10-hour curfew. I used gasolene sales as the proxy to measure the on-the-road vehicle population.

Two of the three gas station owners that I contacted provided information. A Kingston-based operator said his sales have declined by nearly two-thirds when compared to 2019. The station is normally open 24-hours per day. Now, it opens for only eight hours.

My other source, which operates a network of stations in St Catherine and other areas outside of Kingston, estimate a 15-20 per cent decline in sales in aggregate for the months of March and April 2020 as compared to 2019. Some stations have seen declines by 40 per cent. In other cases, the reduction has been minimal.

There is also anecdotal information from the head of the government’s Road Safety Unit that point to a reduction in the number of vehicles on the road. Absent from his comments, however, is any discussion about whether fewer vehicles will translate into premium givebacks by motor insurers. The main message being sent to consumers by insurers is to use their online platforms for safety and convenience.

Meanwhile, elsewhere, according to Justin Rohrlich, a geopolitics reporter for Quartz: “US auto insurance companies are making billions more in profit each month as Americans stay off the roads during the coronavirus outbreak. As the virus continues to spread throughout the US, far beyond the hot spots of New York, California, and Washington, most of the country has suspended travel plans and is largely staying indoors. Many people are working from home and not commuting. Others have lost their jobs altogether.

“All this means that Americans are driving fewer miles. Fewer cars on the road mean fewer accidents. Fewer accidents mean fewer claims. In China, where the coronavirus pandemic is further along than it is in the US, auto insurers have already reported a steep decline in payouts.”

CNN Business reported on April 7 that two insurers – Allstate and American Family Insurance – announced givebacks totalling US$800 million to their auto insurance customers.

“Allstate said it will refund about 15% of premiums paid by its customers in April and May, which comes to a total of about $600 million. ‘Given an unprecedented decline in driving, customers will receive a Shelter-in-Place Payback,’ said Allstate CEO Tom Wilson ‘This is fair because less driving means fewer accidents’.

“Allstate's payments will go to all US and Canadian customers with personal auto insurance, whether or not their state has any kind of stay-at-home order. American Family, which only serves customers in 19 states, also said its payments would go to all of its customers.

“American Family Insurance said it will give back about $50 per car that a household has insured with the company via a one-time payment. It said that will total about $200 million.

“Allstate and American Family also said their customers who are having financial problems because of a loss of income can delay payments on insurance premiums without penalty if they contact the companies. Both are also expanding insurance coverage for customers who use their personal vehicles to deliver food, medicine and other goods.”

On the other side of the Atlantic, the ‘ancestral home’ of our local motor insurers, Sian Barton wrote the following in InsuranceAge on April 8: “On-demand insurtechs encourage incumbents to give back premium as it is predicted providers could save £1bn as claims plummet amid lockdown. On-demand motor providers have called on incumbents to reduce premiums amid the current lockdown which is in place to diminish the spread of coronavirus. Insurtechs Cuvva and By Miles both separately urged traditional insurers to consider changes to premium to reflect that policyholders are using their vehicles less while social distancing measures are in force. Cuvva noted that government figures show vehicle use is down two thirds and some providers, according to sister title Insurance Post, have seen claims drop by as much as 50%.”

Treating customers fairly is one of the pillars on which the Financial Services Commission’s February 2019 Revised Market Conduct Guidelines is built. The first objective of these rules is that insurers and intermediaries act “with high standards of integrity and fair dealing in the conduct of business”. Refunding a portion of the premium that policyholders paid is the right thing to do under the present circumstances.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com