Auto insurers lowering premiums because of reduced driving during the coronavirus pandemic

Apr. 27--Responding to drastically reduced driving during the coronavirus pandemic, many auto insurers are lowering premiums.

State Farm, Geico and Chubb are among some of the larger insurers that recently announced reductions in premiums, citing COVID-19's curbing of driving.

Fewer vehicles on roads means fewer miles driven, fewer accidents and reduced risks of crashes, insurers and consumer advocates said.

Kathleen McGuigan of Scranton, a Geico field representative for Northeast Pennsylvania and part of adjoining New York, referenced a saying, "People are getting four weeks to the gallon now with gas."

The Consumer Federation of America, a Washington, D.C.-based, nationwide nonprofit association of 250 consumer organizations, began pushing for lower auto insurance premiums in mid-March, when staying put and driving less started to hit home.

Before the pandemic, most premiums were based on assumptions that motorists would be driving to work daily, said CFA insurance expert Doug Heller. The amount of driving being done is an important factor in premiums, because it's one of the most significant factors in risk, he said. But the pandemic's impact on driving habits changed the equation.

"If you drive less, you should pay less," Heller said. "You don't need to be an actuary. The math isn't complicated. If you're stuck at home and not driving, you're not causing accidents."

Even essential workers required to drive face less risk, because of the reduced number of vehicles on roads overall, he said.

Insurers also started hearing from individual consumers questioning their premiums for insurance of cars largely parked at home, Heller said.

Insurance regulators in some states also began calling for refunds or rebates and other consumer protections during the pandemic.

Insurers responded. Since April 9, several firms have announced reductions in auto-insurance premiums. Most of the lowered premiums come as credits on policy renewals. The companies differ on methods, percentages of rate cuts and dollars returned.

State Farm Mutual Automobile Insurance Co., the nation's largest auto insurer, on April 9 announced up to a $2 billion "dividend" for its customers in the form of an average 25% credit reduction on a premium from March 20 through May 31.

"With schools and businesses closed, and many of us sheltering in our homes, people are driving less right now, so we're returning value to customers as we anticipate fewer auto claims," State Farm said in its announcement.

On April 10, GEICO announced a giveback of a 15% credit on a policy renewal between April 8 and Oct. 7, and the same 15% credit on new policies. A 15% credit on a six-month policy costing $1,000 would drop the premium to $850, for a $150 reduction.

On April 13, Chubb said it will cut premiums 35% for April and May on renewals, for a savings of about $110 per vehicle.

The value of all of the auto insurance credits and refunds throughout the nation totaled $6.5 billion, according to the CFA, which on April 13 issued a tracking "Report Card" of all the firms.

Insurers were faced with giving back or "they will be sitting on a coronavirus windfall" that could draw the attention of regulators, Heller said. He expects the issue to continue during the pandemic and afterward.

"Even when stay-at-home orders are lifted and some people start going back to work, the streets of America in June and July are not going to look like they did in January and February when premiums were set," Heller said. "The fact they've begun (to address refunds) is a good start. I'll concede that it's hard to get this exactly right in the middle of a crisis."

As unemployment caused by the pandemic could lead to declines in credit scores for many people, Pennsylvania Insurance Commissioner Jessica Altman issued a notice March 31 to all auto insurers in the state telling them that "a declining credit score may not be used to increase a premium at renewal."

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