Mileage Has Decreased by up to 50% in Some Areas, Insurers Say
Americans have gotten used to a steady stream of grim news in the last few weeks. We’ve all heard it by now: We are the world’s leader in confirmed coronavirus cases. Our economy is frozen because of necessary social distancing. Many U.S. workers have lost their jobs already.
In this exquisitely depressing moment, any good news is welcome. So, here’s a little bit from the auto industry: Several major insurers will be offering refunds to customers in response to the recent decrease in claims. All told, the industry is expected to return billions to customers’ pockets by way of financial credits or rebate checks. Even better, this offer will automatically be applied to all open accounts.
Insurers offering this benefit include:
- American Family Insurance
- Farmers Insurance
- Liberty Mutual
Others, such as State Farm, have not made specific commitments but are expected to release a rebate program in the next few days.
It’s All About Risk
Auto insurance, like all other forms of insurance, is calculated based on risk. The higher a customer’s likelihood of needing help, the more expensive their insurance will be. Insurance companies factor risk into pricing for every form of coverage they sell. This is not just good business sense: Insurance regulators generally require premium costs to have a direct relationship to claim expenses.
Until the coronavirus crisis hit, roads were filled with drivers going to and from work. This was a reflection of a strong economy with low unemployment. Under those normal conditions, commuting accounted for about 28% of total miles driven by Americans.
In the last few weeks, the bottom has dropped out of the economy as Americans shelter in their homes. Some workers have faced layoffs or temporary furloughs. Others, including employees of our law firm, are working from home rather than commuting every day. Social and recreational travel has plummeted too.
As a result, vehicle accidents are expected to drop by an astounding 85% for the duration of the social distancing period. This is not just a reflection of less traffic on the roads. It also reflects the fact that many more accidents occur under high traffic conditions. This intuitively makes sense; we have much less margin for error when we’re surrounded by traffic than when we have the road to ourselves.
Will Insurance Prices Remain Lower? It Remains to Be Seen.
Some of these behavioral changes may linger after social distancing measures have been lifted. For instance, many laid-off workers will not be returning to work right away. There is likely to be a lag in hiring as the economy gets back on its feet. It’s also possible that some workers and employers will decide they like the remote working arrangement. They may decline to go back to business as usual even when we are all allowed to leave our houses again.
Many Americans will need all the financial help they can get in the next few months. Getting insurance money back will not solve every problem, but it is a welcome development in a time when there is so much bad news. These companies are also offering more flexibility when it comes to fee deadlines and pausing policy cancellations due to nonpayment in recognition of widespread financial hardship. Small changes like these can make a big difference in consumers’ lives, especially when money is tight. And the insurance industry—yes, we’re saying it—deserves some credit for making these commitments promptly and of their own volition.