Auto Insurance Givebacks

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Givebacks: Are Consumers Really Getting a Good Deal?

The COVID-19 pandemic radically changed many aspects of American life — including driving habits.

Less Driving, Lower Insurance?

  • In March 2020, parts of the U.S. saw a 60% drop in miles driven
    • Less driving means fewer
      • Low-speed accidents
      • Incidents of aggressive acceleration
  • Auto Insurers Giveback
    • To help drivers experiencing financial hardship during COVID-19, insurance companies are offering:
      • Financial assistance and flexible payment programs
      • Penalty-free grace period for late payments
      • Paused cancellation due to non-payment
      • Waived deductibles for commuting healthcare workers

Some of the nation’s biggest insurers have begun refunding auto insurance premiums in response to the sharp decrease in Americans’ driving mileage.

  • Auto insurance premiums decreased by up to 25% in spring 2020
    • In total, $14 billion was returned to policyholders
      • Allstate: More than $1 billion in paybacks
      • Geico: $2.5 billion in total refunds
      • Progressive: $1 billion in total paybacks
      • State Farm: $4.2 billion in savings for customers

Some Americans are driving more — high demand for home delivery and high unemployment have more people turning to gig work apps like DoorDash.

Is a Total Refund Coming?

  • A reduction in driving mileage can’t translate to an equal refund percentage
    • Multiple variables keep auto insurers from offering complete refunds
      • Variation in severity of accidents
      • Unpredictable changes in driving habits
      • Claims for delayed repairs due to lockdown
      • Increased repair costs due to supply chain disruptions
  • Less driving could mean more insurance claims
    • Less traffic leads to more high-speed incidents
      • 50% increase in accidents while driving above 70 mph
      • 30% increase in the rate of drivers going over 100 mph
    • An increase in speeding may lead to
      • Increase in claims
      • More severe accidents
      • Higher cost claims
  • Understanding Risk Pools
    • Car insurance is required for drivers nationwide — meaning insurers cover drivers with varying levels of risk
      • High-risk: Drivers with a history of moving violations, teenagers
      • Low-risk: Experienced drivers who have never received a ticket
    • Risk pools spread claim costs across more individuals, keeping premiums lower
      • An individual driver’s claim may cost more than their premiums
      • Other drivers’ premiums make up the difference
    • Higher-risk drivers pay higher premiums — driving less may reduce your risk profile and provide an opportunity for savings

94% of car accidents are caused by human error — speeding, driving under the influence, distraction, and drowsiness.

Could autonomous vehicles help decrease car accidents and lower auto insurance premiums?

Autonomous Driving & Auto Insurance

  • In the future, increased autonomous vehicles may lead to
    • Fewer insurance claims
    • Lower premiums
    • Shift in liability
  • Who is responsible for autonomous driving?
    • Liability will shift from the driver to the vehicle
    • Driver behavior and claim history will be irrelevant
    • New calculations for determining risk
  • Do Autonomous Vehicles Need Insurance?

6% of accidents are caused by a vehicle malfunction, environment, and other reasons beyond the driver’s control.

  • Determining fault in an autonomous vehicle accident is complex
    • If the driver is in control, traditional auto insurance will prevail
    • BUT, if autonomous technology is engaged,
      • Should the manufacturer be liable for all accidents?
      • Or, should the driver be liable for failing to intervene?
    • The simplest solution may be no fault or split fault personal auto insurance
  • A Simpler Approach To Insurance
    • Rather than personal auto insurance, autonomous vehicle manufacturers may start offering their own insurance option
    • Manufacturer-issued insurance would eliminate the need to determine if the vehicle or driver is liable
    • Manufacturers would be able to
      • Compute the exact probability of accidents
      • Offer lower insurance premiums
      • Decrease premiums with each new release or upgrade
  • Whatever the details, the adoption of autonomous vehicles will reduce the risk profile of many drivers
    • By 2035, the adoption of autonomous vehicles could reduce auto insurance premiums by $25 billion

Will you switch to autonomous driving in exchange for a lower insurance premium?