The impact of the coronavirus has reverberated across numerous industries. Due to movement restrictions, auto insurance is one of the sectors hit directly by the pandemic. Pandemic-related measures have led to a significant reduction in total mileage covered, affecting premium payment and auto insurance shopping behavior.
Read on to understand the effects of the pandemic on vehicle insurance.
- Insurance Refunds
Most people have hardly left their homes this year. According to a report by the Deloitte Center for Financial Service, lockdowns caused a 40.2% year over year decrease in miles driven in April. Many auto insurance companies in the United States started giving refunds and discounts to auto insurance customers. In the second quarter of 2020 alone, the refunds amounted to 15% -25% percent of total premiums. The Insurance Information Institute (III) estimates that auto insurers will refund $14 billion to customers due to a dramatic reduction in driving.
- Fewer Claims and Compensations
Due to the reduction of vehicles on the roads, car accidents have reduced significantly, leading to fewer insurance claims and compensations. Consequently, the auto insurance industry has performed better during COVID-19 than the pre-COVID-19 period, as reported by Insurance Business. According to Deloitte, personal auto insurance premiums could drop by 6.2% while commercial will reduce by 3.5 % in 2020 due to the pandemic.
- Increased Popularity of Usage-Based Insurance
Changes in how and when people drive due to the ongoing COIVD-19 pandemic have led to the increased popularity of usage-based insurance (UBI). UBI offers policyholders a chance to lower their rates based on their personal driving habits, including speed and miles covered. According to a recent industry survey, about 60% of motorists are happy with auto insurance providers pricing insurance premiums by monitoring driving habits.
- Reduced Road Traffic
During the height of coronavirus, many states resorted to countrywide lockdowns to curb the virus’s spread. The resulting rise in remote working left cars parked for days on end. In turn, road traffic reduced significantly, with total mileage dropping 60% in some states. Some companies adopted new practices such as allowing employees to work remotely for more extended periods even after the lockdowns ended. This shift means people will drive less, reducing risk for insurance companies and leading to a reduction in premiums.
- Changing Consumer Behavior
The pandemic has also affected consumers’ behaviors. In particular, the pandemic has negatively impacted the threshold income of Gen Zers the most, per the Urban Institute. While young adults have historically led the pack in auto insurance shopping, the ongoing pandemic has significantly diminished their purchasing power. A recent report from Transunion highlighted some unique trends among Gen Z and millennials regarding auto insurance buying habits. At first, their shopping rates for auto insurance coverage spiked, followed by a dip.
Besides, car purchasing intent has reduced 26% compared to the pre-corona period, according to a recent survey by McKinsey. If fewer people buy cars, insurers’ income from insurance premiums will decrease proportionately. Future possible shutdowns and the continuing changing landscape due to COVID-19 leaves the auto industry vulnerable to continued financial impacts.
With both good and bad changes due to COVID-19, the auto insurance industry is evolving to meet consumer needs. If you’re shopping for the right auto insurance coverage during COVID-19, talk to the team at Jack Stone Insurance Agency to get started on your reliable coverage. Serving Antioch and neighboring cities in California, we are ready to find the right coverage for you today.