Policyholder dividends have more than tripled so far this year, due largely to approximately $14 billion auto insurers have returned to policyholders in response to reduced driving and fewer accident claims related to the COVID-19 pandemic.
According to National Association of Insurance Commissioners (NAIC) data from Standard & Poor’s Global Market Intelligence, insurers issued $4.8 billion through the second quarter of 2020, almost $3.4 billion more than the same period a year ago. The bulk of that, $3.3 billion, is a result of pandemic-related driving patterns.
Insurers in the first half also booked $4.7 billion in credits through lower rates, and another $1.6 billion was booked as an underwriting expense, according to a Triple-I analysis of industry results.
In the second half of the year, Triple-I projects, insurers will return to customers another $338 million in dividends. Rate decreases of $4.1 billion will make up the remainder of the $14 billion in givebacks.
State Farm, the country’s largest auto insurer by premiums written, in April announced a $2 billion dividend to its auto insurance customers, averaging a 25 percent credit on these customers’ premiums through May 31. Combined with the premium credit and an 11 percent reduction in premium rates, the company said, these initiatives will save customers $4.2 billion through the end of 2020.
USAA, through a series of three dividend announcements, has returned $1.07 billion to auto policyholders and said it also is adjusting its rates.
On top of these, the industry has provided approximately $280 millionin charitable giving specifically related to the pandemic.
By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute
The U.S. Energy Information Administration (EIA) publishes extensive data on petroleum production, refining and supplies to users, with some data provided on a weekly basis. Gasoline supplied to retailers is not quite the same as gasoline consumed but it is close. And gasoline consumed is not exactly the same as miles driven but it is close. Consequently these data can indicate how much people are driving, sooner than we get data on the frequency and severity of collisions. Still, one benefit of tracking these data is that they are published in a timely way.
As a baseline, consider gasoline supplied in the first 12 weeks of 2020, compared to the comparable weeks in 2019 (Figure 1). Although this comparison can be affected by changes in prices from year to year as well as changes in weather (and possibly other differences between the two periods), we can assume that these differences are small and do not obscure longer-term trends.
The graph shows some week-to-week variation, but basically the same—or maybe a little less—gas supplied in 2020 vs. 2019.
Then the pandemic—and the start of the recession caused by fighting it—happened. Driving was sharply curtailed, and auto insurers instituted programs for refunding premiums to reflect this change. Figure 2 adds to Figure 1 the percentage change in year-over-year supplies of gas for the rest of March and all of April 2020.
But in May some states began relaxing various restrictions, and driving began to return to near-pre-pandemic/recession levels, as Figure 3 shows.
At this point there is no way to know what caused this spike in gas usage, but some speculate that any or all of the following could be responsible:
• States are moving to more permissive stages of lockdown, resulting in more travel, especially to beaches and other outdoor activities
• People who once took public transportation are now choosing to drive, thereby lessening exposure to the virus that might result from travel on mass transit
• Warmer weather months are traditionally a time for more driving
• The price of gas continues to be unusually low, making driving less burdensome than the prior year.
Insurers refunded $1.2 billion to California policyholders as of June 26, according to actuarial firm Perr & Knight.
The California Department of Insurance (CDI) ordered the refunds to drivers and businesses in the state affected by the COVID-19 emergency. The companies were required to file reports outlining the details of their response to COVID-19.
CDI recently made these reports public, and Perr & Knight, which specializes in rate filings, published an analysis. Here are some key takeaways:
California’s reports have information on the number and percentage of policyholders affected. If the state is a guide, EVERY person with a personal auto insurance policy got a break on premiums, as well as millions of other policyholders, according to James Lynch, Triple-I’s chief actuary.
Private auto insurance customers received the largest share of the refunds – a little over $1 billion. Commercial auto customers received about $33 million in refunds, and workers compensation customers received $82.7 million.
Commercial multi-peril clients received $11.2 million, commercial liability $7.2 million and medical malpractice $10.3 million.
The reports also have data on payment deferrals (grace periods), which is something that has been underrecognized, in part because it was so hard to quantify.
With a number of carriers increasing the credit they are giving on their policies, U.S. auto insurers will return over $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to an Insurance Information Institute (Triple-I) estimate.
Auto insurers are giving refunds to their customers as people are driving less due to coronavirus shut-downs. No action is required by customers to receive credit in most cases, but to learn more, contact your auto insurer.
Since people are driving less in the midst of COVID-19
related stay-at-home orders, many auto insurers have responded with premium
refunds totaling about $10 billion.
How are consumers reacting to these refunds? A May 5 webinar
co-hosted by Cambridge Mobile Telematics’ (CMT) VP of Insurance &
Government Affairs, Ryan McMahon, and J.D. Power’s VP of Insurance
Intelligence, Kyle Schmitt, shed light on this question.
J.D. Power has been conducting consumer sentiment surveys since March 24. Schmitt said that one key takeaway is that in light of pandemic related layoffs, customers are thinking pragmatically about auto insurance, so the timing of the premium relief announcements was excellent. However, it’s important to note that auto insurance is not top of mind for many consumers struggling to keep the lights on or food on the table, and not everyone is aware of refunds.
Here are a few other key takeaways:
McMahon noted that while miles travelled are
down, speeding and distraction both peaked in April based on CMT’s analysis,
and fatalities are up.
Schmitt said that changes in price stability
driven by broad market conditions (such as accident frequency) are not well
received by consumers who will shop around in response; in contrast to price
increases driven by a life event or an accident which consumers tend to take in
When it comes to telematics, value is key.
Consumers expect to continue to not drive as much in the foreseeable future and
are thinking about the cost savings offered by telematics programs, therefore
interest in telematics has spiked according J.D. Power surveys.
Of those that think their driving rates will
remain low 40 percent are interested in telematics.
The panelists were also asked to speculate about possible
increases in fraud, and McMahon said that fraud activity always comes with
economic reductions, however it’s possible that fraudulent claims may be easier
to spot because there are fewer claims.
How will the COVID-19 pandemic affect auto
insurers in the longer term? No one knows for sure, of course, but a new McKinsey
study provides a framework for considering the question.
Fewer people are driving due to business
closures and work-from-home practices. This could lead to fewer accidents and
claims – but evidence suggests severity of the claims generated may worsen. Speeding
has increased in several states – in some cases, leading to fatal accidents.
In the longer term, McKinsey suggests, the
pandemic could precipitate structural changes in the market for car insurance:
“Mobility trends may pause if more people choose to own a car and drive
everywhere because they think ride sharing and public transportation are too
risky…. Historically low oil prices will make driving much more affordable.”
On the other hand, if car purchases decrease
because of economic uncertainty and unemployment, insurance sales could decline,
hurting revenues. The industry already has returned
more than $10 billion to policyholders through premium
relief during the crisis, which also could affect insurers’ bottom lines.
The McKinsey report lays out four scenarios to
help insurers think about how the economic impact may play out in the longer
Pause and rebound. This scenario
supposes the economic slowdown will end rapidly and the rebound will occur as
quickly as the contraction. Consumers’ behavioral changes are assumed to be
limited. Drivers might be a bit more conservative after the shutdown,
exhibiting more caution, leading to fewer accidents which would help insurer
“Pent-up demand, supply-chain innovation, and infrastructure
commitments would pull the economy to near pre-COVID-19 levels within weeks,”
YOLO (You Only Live Once).
This scenario is defined by a rapid economic rebound but also more aggressive
driving behaviors: “Fueled by cheap gas and a disdain for shared mobility, the
roads and highways would become more crowded.”
this scenario, McKinsey writes, accident
severity would continue to climb, putting pressure on insurers to raise rates.
The sudden drop in accident frequency during the pandemic, followed by a rapid
escalation, “could strain the accuracy of actuarial techniques and regulatory
Retrenchment. Difficulty managing
the virus and complications from the business shutdown lead to a lengthy
economic downturn: “As in the pause and rebound scenario….new behavioral norms
would result in less travel, redefine entertainment, and contribute to a more cautious
outlook on life.”
Favorable trends in claims frequency would continue, and claims
severity would moderate in line with the more conservative behaviors.
But, McKinsey writes, “consistent with economic conditions, a
surge would occur in the nonstandard market and state risk pools. Fraud would
also spike as a by-product of economic pressures.”
Insurers could face consumer and regulatory pressure to return more
premiums or reduce them further and expand coverage. Profitability would suffer.
Black swan. Worst case for
economic contraction and behavioral changes. New behavioral norms generate a YOLO outlook and compromise
policing capabilities. Accident frequency would rise sharply. Claims severity
would continue to climb.
“In addition,” McKinsey writes, “regulatory pressure could push
rates down further or force expanded coverage,” exacerbating worsening profitability.
analyzes the potential impact on auto insurers under each of these scenarios
and associates each with a projected combined ratio – the most frequently used
measure of insurer profitability.
U.S. auto insurers will return more than $10 billion to their
customers nationwide, according to an estimate released on April 11 by the Insurance
Information Institute (Triple-I).
are again fulfilling their role as economic first responders by providing
financial relief to customers when they need it most,” said Sean Kevelighan,
CEO, Triple-I. “If the rest of the nation’s private-passenger auto insurers are
as generous as the companies the Triple-I knows about, we project insurers will
be giving customer refunds, discounts, dividends, and credits totaling $10.5
Triple-I’s $10.5 billion estimate is based on its analysis of 14 U.S. auto
insurers who announced this
week premium refunds, discounts, dividends, and credits
totaling $8.1 billion. These insurers cited reduced policyholder mileage
and the receipt of fewer claims amid the COVID-19 crisis as the reasons they
were able to make these decisions.
there are hundreds of companies that sell private-passenger auto insurance in
the U.S., the Triple-I looked at the industry’s cumulative market share and
estimated an additional $2.4 billion in refunds, discounts, dividends and
credits were forthcoming. The Triple-I has updated its Fact Sheet, Insurers Offer
Forward-Looking Solutions For COVID-19 Recovery, to reflect the
latest steps taken by the nation’s auto insurers.
are challenging financial times for millions of Americans, and the country’s auto
insurers are making it easier for their customers to get through this
extraordinary time in U.S. history,” Kevelighan stated.
Triple-I estimates the typical U.S. auto insurance customer spent $1,113 in
2019 to cover a single private-passenger vehicle.
and other travel restrictions due to COVID-19 have limited the number of miles
being driven and have consequently put pressure on auto insurers to rebate
premiums or otherwise provide offsets, S&P Global Market Intelligence reports.
While U.S. private
auto direct premiums written have not declined by more than 0.3 percent on a year-over-year
basis in at least the past two decades, the pandemic risks maintaining this
record. Certain state regulators and auto insurers are now taking steps to give
financially burdened consumers additional time to make payments.
However, the article says, those steps may not be enough as public pressure increases. The Consumer Federation of America has proposed that auto insurers provide monthly offset payments to consumers to avoid what it alleged to represent the “windfall” profits the industry would otherwise produce.