Editor’s note: This item is excerpted from a longer report from Arity, which you can find here.
Back in the early days of the pandemic, we identified several ways the auto insurance industry might be impacted by COVID-19 over the course of 2020. While some of these predictions followed conventional wisdom and unfolded the way we anticipated, others played out in somewhat unexpected ways. Here, we take a look at some of the various impacts COVID-19 had on reshaping the auto insurance world over the past year.
Despite fewer accidents and faster payouts, claims costs increased
When it came to claims costs, we hypothesized that supply chain disruptions could impact repair costs, and strained hospitals might affect the experience of accident victims and ultimately their medical costs. We also wondered if court closures might lead to shifts in claim development.
For instance, a study performed by Mitchell, an insights company with expertise in the Property & Casualty and collision repair landscape, found hospital charges have increased despite reduced emergency visits for auto accident claimants. The analysis noted that larger delays and gaps in treatment may be a driver for increased inpatient costs leading to higher claims severities, likely at least in part due to the spiking number of COVID-19 cases making people think twice before visiting ERs.
Additionally, the National Highway Traffic and Safety Administration (NHTSA) just reported that in their preliminary 2020 data, fatalities initially fell in April and May, but then jumped in June and rose by 13.1% in the following three months, ending in September with the highest rates since 2005. Like Arity’s driving behavior data, the NHTSA found that while fewer Americans drove, those who remained on the roads engaged in riskier behavior, like driving at higher speeds, and had more fatal crashes as a result.
Unsurprisingly, with increasing medical costs and riskier behavior, bodily injury severities were much higher in 2020 than 2019, and yet these types of claims were settled more quickly than ever. LexisNexis continues to report higher ratios of bodily injury claim settlements within the first 90 days, and more physical damage claims paid within the first ten days. It’s quite possible these shorter claim settlements are the result of increased virtual claims handling, in which case if the use of this technology continues, we may see this speed emerge as a new norm. Of course, as we’ve already noted, the number of claims overall was down. The lower volume of claims likely also had an impact on the handling speed - an impact that could normalize as companies adjust the size of their claims force to meet the changing needs.
Theft and fraud claims went up, not only for the usual reasons
While fewer miles driven could lead to fewer accident-related claims, coverages like comprehensive, tend to be impacted by other causes. We hypothesized that, as in prior recessions, there could be increases in certain types of activity such as theft claims and fraud. Past recessions do foretell possible increases in vehicle theft claims for insurance companies, but the pandemic and its related lockdowns added a new twist with unmonitored vehicles.
Some cities such as New York and Los Angeles experienced vehicle larcenies up 63% and 17%, respectively, from Jan 1st through mid-May, compared with the same period in 2019. Similarly, even with anticipated trends due to economic slowdowns, the pandemic presented an additional layer of impact for fraudulent claims. The shift to remote working has affected the way some insurers are able to physically inspect fraud claims leading to fewer inspections and greater reliance “on gut feelings and experience.”
Overall, the incidence of assumed fraud-related claims is generally 10%, but that rate has jumped to 18% according to fraud detection and risk assessment software provider FRISS in their 2020 Insurance Fraud Report survey. This continues to present evidence that while insurance companies can look at prior trends to forecast specific coverage impacts, COVID-19 presents unique considerations that will likely continue to play a role.
Shopping increased, specifically for UBI and mileage-based programs
Thus, re-evaluating their policies to find further ways to reduce their premiums, motivating calls to their insurer to review additional potential policy changes. With more cars idle thanks to sheltering in place, drivers shifting to working from home or even losing jobs, policyholders also began thinking about how their reduction in driving could lead to greater savings prompting them to seek out usage-based auto insurance (UBI) or mileage-based programs that would reward them for driving less. Similarly, in another survey, we found that consumer comfort with the use of driving behaviors to price their insurance had risen to all-time highs, and more than half of insured are now open to a UBI policy, priced according to how and how much they drive. Actual shopping rates were reflective of these consumer attitudes, as in-market behavior data aggregator Jornaya found that from March through the summer, personal auto insurance shopping volume fluctuated substantially higher than 2019 levels, still hovering around 20% higher as of December.
The pandemic also appeared to accelerate the need for special coverages for rideshare and gig driving. As Arity data reported in August, we saw individuals adopting different behaviors based on their own circumstance – including what appeared to be driving even more among folks taking on flexible, driving jobs with companies like Instacart, DoorDash, or Lyft in order to deliver food, groceries, and essentials throughout the pandemic. Digging deeper, Arity analyzed when people were driving for personal reasons versus these gig platforms and found people who were ‘full-time’ gig drivers prior to the pandemic, defined as those that took more than 40 trips per week, remained close to their same level of activity even when some were not.
Indeed, new mixes of covered losses have emerged, with nuances offered within the ‘on-demand delivery driver’ category depending on the type of delivery and company the product or service originates from. We’ve already learned so much about the unique ways COVID-19 has impacted the auto insurance industry, and we’ll continue to keep an eye on how this evolves.
