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?