Some Auto Insurers Are Sending Refunds To Customers As Crash Rate Falls

[Alcoholic Actuary]

I know FIRE sector anything is a hot button topic for several here, but this seems a bit positive:

https://www.npr.org/sections/corona...ding-refunds-to-customers-as-crash-rate-falls

"The pandemic has emptied out U.S. streets, as Americans stay home to avoid spreading the coronavirus. Less driving means fewer car crashes. Fewer car crashes means big savings for auto insurers.
And at least two companies have decided to pass those savings along to their customers.
Allstate is going to send out some $600 million in premium refunds. All 18 million drivers with Allstate auto policies will be receiving 15% of their premium, credited to their bank account, credit card or Allstate account.
"This is about fairness," Allstate CEO Tom Wilson said Monday, noting that driving mileage is down 35% to 50%, even in states that do not currently have shelter-in-place orders. "This is about doing it and not waiting to be asked."

I think it's a pretty bold move. Perhaps insurers would be 'compelled' to do this eventually, but it says something for a couple insurers to do this uninfluenced - particularly given the current state of Auto Liability and Auto Physical Damage insurance (it sucks and needs rate increases).

On the flip side, it seems like we can expect an increase in Business Interruption and Workers Compensation claims, as part time employees are laid off and unemployment benefit insurance runs out.

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[Metaphor]

I know FIRE sector anything is a hot button topic for several here, but this seems a bit positive:

https://www.npr.org/sections/corona...ding-refunds-to-customers-as-crash-rate-falls

"The pandemic has emptied out U.S. streets, as Americans stay home to avoid spreading the coronavirus. Less driving means fewer car crashes. Fewer car crashes means big savings for auto insurers.
And at least two companies have decided to pass those savings along to their customers.
Allstate is going to send out some $600 million in premium refunds. All 18 million drivers with Allstate auto policies will be receiving 15% of their premium, credited to their bank account, credit card or Allstate account.
"This is about fairness," Allstate CEO Tom Wilson said Monday, noting that driving mileage is down 35% to 50%, even in states that do not currently have shelter-in-place orders. "This is about doing it and not waiting to be asked."

I think it's a pretty bold move. Perhaps insurers would be 'compelled' to do this eventually, but it says something for a couple insurers to do this uninfluenced - particularly given the current state of Auto Liability and Auto Physical Damage insurance (it sucks and needs rate increases).

On the flip side, it seems like we can expect an increase in Business Interruption and Workers Compensation claims, as part time employees are laid off and unemployment benefit insurance runs out.

aa

If it's actuarially sound, it's a good idea. What relevant differences are there (if any) between a private mutual company doing this and a public company like allstate? I notice the other company in the article is a mutual fund.

 

[Alcoholic Actuary]

I know FIRE sector anything is a hot button topic for several here, but this seems a bit positive:

https://www.npr.org/sections/corona...ding-refunds-to-customers-as-crash-rate-falls

"The pandemic has emptied out U.S. streets, as Americans stay home to avoid spreading the coronavirus. Less driving means fewer car crashes. Fewer car crashes means big savings for auto insurers.
And at least two companies have decided to pass those savings along to their customers.
Allstate is going to send out some $600 million in premium refunds. All 18 million drivers with Allstate auto policies will be receiving 15% of their premium, credited to their bank account, credit card or Allstate account.
"This is about fairness," Allstate CEO Tom Wilson said Monday, noting that driving mileage is down 35% to 50%, even in states that do not currently have shelter-in-place orders. "This is about doing it and not waiting to be asked."

I think it's a pretty bold move. Perhaps insurers would be 'compelled' to do this eventually, but it says something for a couple insurers to do this uninfluenced - particularly given the current state of Auto Liability and Auto Physical Damage insurance (it sucks and needs rate increases).

On the flip side, it seems like we can expect an increase in Business Interruption and Workers Compensation claims, as part time employees are laid off and unemployment benefit insurance runs out.

aa

If it's actuarially sound, it's a good idea. What relevant differences are there (if any) between a private mutual company doing this and a public company like allstate? I notice the other company in the article is a mutual fund.

Great question. Typically generic insurance companies are privately held or publicly traded and that's how they get capital to support the business. A mutual fund is owned by the policy holders and gets its capital from them in profitable years through premiums. The basic difference is that it is much harder for a mutual to raise capital and grow than it is for a public/private company.

OTOH, a typical mutual would receive a refund of premiums at the end of the year anyway (assuming the mutual isn't trying to grow) in the form of dividends to the owners - who are the policy holders. Whereas a private/public company would almost never refund premiums unless they "accidentally" run afoul of the law.

Of further curiosity is your mention of actuarially sound refunds. I'm not exactly sure how that was determined. I get that Auto Phys Dam is reported fairly early, and Auto Liability lags a bit behind, but we've only had reduced exposure for what: 1-2 months? Given years upon decades of claim frequency data, how are they sure that 1-2 months of decrease warrants a premium refund vs. just an anomaly in the data? I think it suggests that they are being a bit altruistic/optimistic in their perspective because they could easily say it will take 6 months to a year before we have the exact numbers worked out.

aa