Triple-I’s chief actuary, James Lynch, gave this talk on the changes that COVID-19 is bringing to the automobile insurance business, at the American Academy of Actuaries Annual Meeting last week.
“Thanks for inviting me to be part of such an august panel. I wanted to spend a few moments talking about what Insurance Information Institute research indicates are significant changes happening in the sector right now and what may lie ahead.
Not surprisingly, the pandemic has had an enormous influence. Triple-I estimates that insurers will return $14 billion to customers because of the dramatic decrease in driving. Even with that, most insurers have shown improved results.
A good rule of thumb is that insurers returned about 15 percent of second quarter premiums. Fast Track data show that loss costs in the second quarter were between 7 and 40 percent lower than a year earlier, depending on coverage.
A closer look at the numbers show what might be a disturbing long-term trend. Frequency was way down in every coverage, but some coverages showed disturbing spikes in claim severity. Property damage frequency was down more than 30 percent from a year earlier, but severity was up almost 20 percent. This was likely caused by faster driving.
Since the spring lockdowns have eased, customers are driving more again, but they still haven’t returned to the levels of a year ago. Right now people are driving about 12 percent fewer miles than they did a year ago.
However, there is ample evidence that drivers are still going faster than they did, particularly at rush hours. That’s why mileage driven this year is down 12 percent, but traffic fatalities are up 4 percent. The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates.
There’s good news for insurers though. Telematic information was an important reason insurers could return money quickly to their customers, and that fact seems to have brought positive attention to usage-based insurance. Research by Arity shows that 58 percent of drivers surveyed this year are comfortable with insurers monitoring distracted driving to price insurance, up from 39 percent a year ago. There were similar increases for monitoring miles driven, speed and where a person drives.
There are lots of other questions about where the industry is going, and I guess I’ll step back and let us talk about those as a group.”