It’s amazing how we’re always learning new ways the Coronavirus is affecting us. Here are a couple points you likely wouldn’t be expecting.
Were you one of those insureds that received a check or credit from your auto insurance company citing the reduction in travel and reduced accident counts during the corona shut down of March through May? The reduced travel did translate into fewer accidents. Those fewer accidents, in theory, should have translated to fewer dollars paid out. However, it appears that may not be the case and they may have returned those premium dollars too soon.
Insurance companies jumped on this premium credit, or premium return, as a good will gesture. They’re playing it up as a way to support the consumer with so many adversely affected by the Corona Virus. It has been a great boost for their public image. But why would the insurance company give money back now rather than show their stockholders a very profitable year?
There is no doubt that the reduced number of cars on the road resulted in lower traffic volumes and fewer accidents. In New York City the number of collisions plummeted in April to 4,103 from 16,808 in the same period of 2019. That’s a reduction of 76%! During that same time frame and same metropolitan geographical area, fatal collisions decreased 35%. Similar statistical results were experienced in most urban sections of the country during the shutdown period. Those statistics were justification for returning premiums to insurance customers by most companies.
The adage “pay me now, or pay me later” is appropriate here. Insurance companies have to apply to each state for approval to charge the rates they are charging you. They use loss trend studies derived from 3, 5, and 10 years’ data to demonstrate the need for the rate they want to charge you. By returning some of the surplus revenue to the consumer now, they are able to show a reduction in profitability for this year. Not returning these excess funds would show this calendar year as an extremely profitable year. That profitability would distort the rate calculations, to the customer’s advantage, for years to come. For now it has been a “win-win” for the consumer and the carriers.
The reduction in traffic did not lead to safer roads across the US. To the contrary, as traffic volume disappeared roads became more lethal. We may be seeing fewer accidents but preliminary reports are that the severity of injuries sustained in those fewer accidents are dramatically higher. The lower traffic volume has had an unexpected impact on our driving habits; it has become open season on speed and reckless driving. The National Safety Council reports that there was a 37% increase in the number of fatalities per road mile driven than the same period last year. The NSC noted that the lock downs and reduced road congestion created an apparent “open season” on reckless driving.
With less traffic, fewer cars and trucks on the road, it’s easy to increase your speed on those quieter roads. With less congestion, commuting times are shorter. That lack of congestion provides fewer impediments to your ability to “cruise along” that highway or back country road.
When we look at the number of fatalities per mile driven, the numbers have jumped in the months we’ve been impacted by that Corona pandemic. In 2019 the number of fatal collisions per 1,000 crashes was 1.2 per 1,000 crashes. In 2020 it jumped to 3.2 per 1,000 crashes.
Contributing to this craze is the increased number of closely timed delivery service businesses like Amazon, Domino’s, Grub Hub, and Peapod along with all the other consumer oriented delivery services. Along with the increased volume of deliveries, so too has the expectation to get it to you faster. Other contributing factors include a lack of conformance with traffic regulations, business hiring emphasis on getting a warm body in the driver seat with little on their driving abilities. Stop & Shop hired numerous inexperienced drivers to meet its consumer demand for their Peapods grocery operations. They are now reportedly “getting back to basics” with improved training of these new hires. Amazon, it was recently announced, “has grown rapidly to become the single largest delivery service in the United States.”
Long haul trucking has also contributed to the increased number of lethal accidents. The high demand to get grocery store shelves restocked prompted many truckers to push the extremes on the maximum allowed duty times and road speeds. Truckers were essential workers during the shutdown so no one wanted to get in the way of moving consumer goods along the vacant highways. Without traffic, it has been easy to travel at faster speeds. Very few of these drivers had accidents; but when they did, it involved serious property damage, injury, or death to someone in the crash.
Another surprise change we’re beginning to see is consumers warming to the idea of “usage-based insurance” rating systems also known as telematics. This involves the placement of a tracking device in your car which shows daily miles traveled, times of travel, speeds, and particularly the rapid accelerations and hard braking caused by whoever is driving your car. Past resistance has involved overcoming the image of “big brother is watching”. Insurance carriers are now finding that consumers are ready to work with insurers to price their insurance based on how, and how often the car is driven instead of the traditional rating factors that include maximum commute, gender, age, and garaging location. Why pay a rate that contemplates a daily 10-15 mile commute when you’re actually working from home 3 or 4 days a week?
The Coronavirus is but another challenge the insurance industry is evolving through. As it does I’ll be watching for its impact on you.