(Insurance NewsNet) - COVID-19 changed the way we live, work, drive, interact and travel. But companies and consumers are wondering how many of those changes may be long-lasting or even permanent, evaluating life in the post-pandemic era and adapting for major change.
Auto insurers in particular are looking at the changes in driving behavior over the past two years, trying to figure out whether the pandemic trends signal a permanent change and what it might do to revenue, premiums and costs.
“Things are still changing and they’re going to change the way we do business,” Don Hendriks, actuary and data scientist at CARFAX Banking & Insurance Group, said at a Society of Insurance Research webinar last week. “Even though we’re kind of done with COVID-19, it isn’t done with us.”
Less driving, less congestion, fewer autos on the roads and lower frequency of accidents meant a good year financially for most auto insurers. Even when accounting for some premium rebates during the height of the pandemic, profits generally boomed.
“All in all, this sounds like pretty good news for the insurance industry,” Hendriks said. “We're going to make more money if we use mileage as a rating variable. We can fine tune our rates and things are looking pretty good.”
But, he said, it’s clear driving habits are changing. And it’s never all good news when things change.
Relying on data collected from usage-based insurance telematics, smartphone apps and third-party providers, Hendriks said overall mileage is creeping back to pre-pandemic levels. However, big differences are showing up in traffic congestion times, the types of drivers now on the road, and where they’re going.
Most alarmingly for insurers, however, is data showing that driving speeds are way up. Rush hour speeds in Washington, which Hendrik said were comparable to other cities, rose an average 61% in 2020 and 56% in 2021, compared with 2019 levels.
“That's a big increase,” he said. “And rush hour is our biggest exposure time as insurers. That's when people have accidents.”
Mid-day drivers are more likely to be commuters now than before the pandemic. Commuters tend to be more aggressive by nature, he said.
“They're changing our exposure,” he said. “The fact that downtown speeds are up 40% is kind of horrifying.”
In urban areas, Hendriks noted, there is a great diversity of drivers and styles, and city driving requires much more attentiveness than rural driving does.
“The idea of speeding everything up by 40% can be a little scary,” he said. “We know that high speeds drive high severity and increases the frequency of single vehicle crashes. Single-vehicle crashes are the most severe crashes that we face as insurers.”
And while accident fatalities are not usually directly to insurance loss costs, the fact that fatalities are escalating is worrisome, Kendrick said.
The National Highway Traffic Safety Administration data for fatalities show a 25% increase in crash related fatalities in 2020 and 2021.
“With the speeds going up, it’s probably not a huge surprise,” Kendrik said. “But when we revisit that rosy picture, we see with frequency dropping during rush hour and looking at the severity of accidents, we have things going in the opposite direction. We need to be thinking about disability numbers that don’t seem to be coming back down even though frequency is dropping.”
The decrease in mileage and increase in speeds is expected to continue. Business travel has been reduced and will likely remain so.
“But one thing that that I think is going to impact the insurance industry going forward is that people are no longer going to need three or four vehicles in a three- or four-person household when two people are working from home,” Kendrik said. “And so they'll reduce the number of vehicles on the policy but that doesn't necessarily mean they'll reduce mileage on the vehicles because now you've got two or three vehicles doing the work when there were three or four.”
The CARFAX data show claims are settling more slowly than in pre-pandemic years, loss reserves for insurers are at an all-time high, and claim costs are rising as accident severities remain high.
By Doug Bailey
March 9, 2022
Doug Bailey is a journalist and freelance writer who lives outside of Boston.
