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Kiersten Essenpreis for Money

For all of the financial setbacks of coronavirus, the pandemic has at least put money into car-owners’ pockets in the form of auto-insurance givebacks and a few outright rate cuts. And the savings are likely to continue, in large part because the pandemic shows every sign of doing so, too.

The savings so far — typically $50 or so per policy, issued in April have mostly been the result of quieter roads. Auto insurers as a rule make more money the less people are getting behind the wheel: Fewer accidents mean fewer claims, hence less cash coming out of their bottom lines to settle them. The givebacks in April were the result of massive reductions in driving early in the pandemic including an unprecedented drop of more than 40% in the last two weeks of March, according to Arity, a mobility data company owned by Allstate.

Conversely, though, the lifting of lockdowns prompted an unsurprising uptick in the number of people on the road. According to Arity, total miles driven rose by 29% between April 1 and May 1. And while driving is still below normal levels, traffic-data provider INRIX reports the percentage was down by only single digits in early June compared with June 2019.

So while Americans may be starting their engines again, much is still up in the air. Here’s our take on why the good times for auto premiums likely will continue to roll into the months ahead, along with a few reasons why savings might still be stymied.

The givebacks so far have fallen short

The optimism over further relief from car-insurance costs starts with what consumer groups say is unfinished business from the huge spring drop in driving. In total, insurers have so far offered about $14 billion in new discounts and refunds to auto policyholders, according to the American Property Casualty Insurance Association.

While that's a lot of money, consumer advocacy groups like the Consumer Federation of America say it still isn’t enough. These groups have pointed out that as many premium credits expired in the early summer, insurers continued to save and consumers didn’t get their deserved share of the savings.

To back up the CFA’s point, just one major insurer, Progressive, reported a year-over-year 10% increase in net premium profit during May, which was similar to bottom-line jumps in March and April for which the company issued account credits. And the CFA highlights that there’s a significant gap between the time State Farm’s 25% discount ended on May 31 and when its promised 11% rate reduction will kick in for customers. Other major insurers have yet to announce further givebacks down the road.

Insurance rates are subject to approval by state regulators, which aren’t supposed to allow unduly high prices. California has been proactive in mandating refunds lasting into May. While most states have not so quickly responded, Heller believes it’s all but inevitable that consumers will see further relief at least in the near term, and especially if more lockdowns arise.

“It has to happen, I think. Insurance companies are so flush with excess premium and know that accidents continue to be way down. They’re going to have to [lower rates], either because it’s just the right thing to do or because regulators make them do it.”

A return to lockdowns could cut driving again

To Heller, the gap between premiums and claims costs will likely persist because there’s reason to think driving may not fully return to normal soon. Even driving levels that are slightly lower than normal, as they are at the moment, can deliver huge claims savings, he adds. And health authorities in states such as Texas are already recommending new lockdowns that, if imposed, could again leave streets emptier, and suppress crashes, claims, and, eventually, auto insurance rates.

"If there is a second wave come the fall, as some have predicted, it would all depend on whether people have opted to drive less," says Loretta Worters, a spokesperson for the Insurance Information Institute. If they do, the gap between premium revenue and claims costs could widen, she said.

The insurance industry is indeed aware of the math, which will help determine the setting of rates. "They're definitely looking at their balance sheet," says Nicole Beck, the director of communications at insurance price-comparison site The Zebra. "It will come down to losses vs. income for the companies."

Work and driving could change for the long-term

One of the lasting effects of the virus may well be a shift in how Americans work, as more and more companies like Facebook recognize the effectiveness of telecommuting. That alone could spell changes in insurance rates in the longer term.

More than half of employers recently surveyed by Human Resources Executive magazine said they’d now allow employees flexibility to work from home, a rise from previous surveys.
Less need to work in an office will likely mean less miles of driving to work, since about 30 percent of vehicle-miles traveled in the U.S. are completed in commutes, according to the Center for Strategic and International Studies.

“We’re going to see that auto insurance has lower exposure to risk of loss than it used to,” Heller says. “Refunds are going to be needed in the short term, the mid-term. And almost certainly in the long run, rates are going to have to be adjusted to reflect this new normal.”

Why breaks are likely rather than certain

Fewer people on the road is a good sign for insurance rates staying lower. But some other factors make long-term drops in auto premiums less than a certainty.

One is the apparent effect of emptier roads on at least some drivers. "Those people who are on the road are driving more dangerously. This means more accidents, claims (losses!), and higher rates," Beck says. As summer heats up and people take back to the road, we can expect an increase in accidents, tickets, and citations, which again boost premiums and stifle potential relief, she explains. (But Heller notes that this damage could be marginal compared to the overwhelming gains for insurers.)

Emptier streets became more lethal during March as stay-at-home orders rolled out, according to the National Safety Council. In a webinar hosted by the Insurance Institute of America, a spokesperson for Cambridge Mobile Telematics observed that while miles driven were down, speeding and distraction both peaked in April, based on CMT’s analysis, and roadway deaths were up.

It’s also unclear how data from this year and previous years will shape the decisions of insurers and regulators in setting 2021 rates, a process that happens annually for each insurer in each state.

Some states require that insurers submit data from recent years, which tends to evolve only slowly from one year to the next. But the pandemic’s quick disruption to driving has upset that long-standing procedure, Heller says. “Recent history is very strange right now,” he notes, and a new process for approving rates might be needed.

“One thing we're recommending is that, while it’s hard to project for the long term, in the short term let’s look at what insurers paid out last month and measure against the old rates to create a mechanism for refunds to customers.”

But getting agreement from insurers and regulators for new ways to set rates may be challenging, given the number of factors at play in premiums. "These things are all part of a very complex mix, and individually they don't predict actual rates and changes,” Beck says. “What we know is that insurers try to right the ship. For example, in the year following Hurricane Harvey, rates went up a lot in Texas to account for the massive losses. The year after that, they went down, meaning insurance companies had adjusted and knew how much they needed to keep the ship right. So these things do cycle and the course corrects."

What you can do right now

You can take steps to stay informed, and even reduce your rates, as the insurance industry, consumer advocates, and regulators continue to work through the fallout from coronavirus on auto insurance. Stay in touch with your insurer on whether and when further premium breaks are coming. Look up any information you can find on their website (many have a dedicated coronavirus page).

If you're confused or unhappy with what you see, act now. That’s especially the case if the economic fallout from the pandemic continues to make it challenging to pay your premiums. Contact an agent or the company directly to see how they can help. Polite negotiation can do wonders. Stress that you're in once-in-a-lifetime difficult circumstances and threaten to leave if need be.

If you’re driving dramatically less, even if you’re getting the standard virus-related credits available for everyone, Heller recommends asking to be re-rated based on lower mileage.

If all else fails, don’t shy away from shopping around for a better rate. "Drivers should remember they have the power to switch to a new insurance company at any time. There are no contracts like with cell phones," Beck advises. "If you've already paid your six- or twelve-month premium, you are entitled by law to get that money back from the old insurance company if you switch to a new one." You always have power as a consumer to nudge your rate in a favorable direction, especially during such a turbulent time.

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