Insurers Cut Auto Rates For The Coronavirus Outbreak; Was It Enough?

Many drivers are getting a break on the cost of their auto insurance since many are stuck at home during the coronavirus outbreak.

Consumer groups, though, say insurers should be doing even more.

Insurers have given refunds, dividends, discounts and credits totaling $10.5 billion, according to estimates compiled by the Insurance Information Institute, an industry group.

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That number is based on recent announcements by 14 big companies and estimates of what smaller companies have done.

The group estimates that the typical U.S. auto insurance customer spent $1,113 in 2019 to cover a single private-passenger vehicle. In Ohio, rates are lower, averaging $727, according to the most recent data from the National Association of Insurance Commissioners.

State Farm, Ohio's biggest insurer with nearly a fifth of the market, is giving the biggest break, awarding a $2 billion dividend to its policyholders that will show up as a credit on their bills.

The $2 billion amounts to a quarter of a policyholder's premium for the period covered by March 20 through May 31, according to the insurance group. Exact amounts will vary by state.

Farmers is reducing rates 25% for April.

In Ohio, smaller insurers such as Grange and Ohio Mutual are offering similar breaks. Grange said its customers will save $25 million; Ohio Mutual policyholders will save $6 million.

Most other big companies are giving reductions of about 15%. Nationwide, for example, is giving $50 to its auto policyholders, which amounts to about a 15% break on premiums for two months.

Another Columbus insurer, Encova, says it will issue a 15% policy credit to more than 80,000 personal auto policyholders for April and May.

But the refunds and credits should be higher, said Bob Hunter, director of insurance for the Consumer Federation of America.

"Clearly, it's follow the leader. Clearly, that's an inadequate number. There's no way that's enough," Hunter said. "We call it a COVID windfall'' for insurers.

Hunter's complaint is that miles driven have fallen far more than what insurers are offering to cut rates.

For example, the amount of miles driven in Franklin County on April 10 was down 69% from a similar period in January, according to StreetLight Data, which tracks how many miles motorists are driving. Many counties throughout the state reported drops of 50% or 60% on that day.

There were 12,686 crashes in March in Ohio, about half the number for the previous three years, according to Ohio Highway Safety data.

"I'm driving way fewer miles," Hunter said. "When you are on the road there are less people to have an accident with.''

Insurers set rates based on the expected number of accidents and claims, and that's why many have reduced or refunded premiums, said James Lynch, the institute's chief actuary.

"When you set your rates you anticipate the number of accidents, average accident size," he said.

Beyond that, though, there are fixed costs that insurers have for staffing, commissions, claims handling and other expenses that don't change even if drivers are putting fewer miles on their car, he said. On top of that, some insurers, unlike other companies, are trying to avoid layoffs during the outbreak.

Another factor is the uncertainty of what insurers should expect from the coronavirus outbreak and driving, he said.

"Fewer cars on the road means people drive faster. When there is an accident, that means more metal gets smashed up," Lynch said.

Plus, getting cars fixed is more expensive, and the pandemic has, in some cases, caused bottlenecks in getting parts, he said.

The state Department of Insurance is keeping an eye on what's happening with rates during the pandemic.

"We are working with the industry and know the vast majority of insurers are already making premium reductions," the department said in a statement. "In addition, we expect more to file similar changes in the near future."

That will depend on fluctuations among insurers based on the data they collect and the coverage they offer, it said.

For example, policies based on mileage or usage likely already are accounting for drivers reducing their time behind the wheel. At the same time, insurers might be offering coverage for drivers, who, for example, are now using their vehicle to make deliveries.

"We will continue to monitor the industry's response and take action as needed to ensure Ohio consumers are protected," the department said.

Beyond the issue of fewer miles, Hunter is asking that insurers not to use credit scores as a factor in setting rates for policyholders.

In many states, drivers with lower credit scores pay more for coverage than those with higher scores.

His concern is that consumers hurt by the economic shock caused by the coronavirus will see their credit scores suffer and, as a result, their rates will go higher.

[email protected]

@BizMarkWilliams

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