Vehicles are parked in garages. Drivers are only hitting the roads once or twice a week. Car crashes have declined drastically. These changes are impacting the car insurance industry severely, and almost instantly, according to experts.
“As soon as shelter-at-home orders were put in place, the cost to insure cars dropped like a free-falling stone,” said Dan Karr, CEO and founder of ValChoice in Bedford. “The costs just went off a cliff.”
Car insurance is a $250 billion industry, with about $165 billion of that spent mostly on claims, according to Karr.
With millions of vehicles sitting idle in garages and driveways because of the COVID-19 pandemic, there could be billions of dollars in claims that won’t be paid, he said.
And while several car insurance carriers throughout the country are starting to offer rebate programs and other deals, Karr says it won’t be enough, stressing individual drivers should take matters into their own hands.
“It is a PR stunt,” he said of the rebates being offered. The deals are nowhere close to representative of what the actual savings will be to insurance carriers, said Karr, who founded ValChoice seven years ago.
The 7-year-old company uses data collected by state insurance regulators to measure insurance companies and coverage value across three factors — price, protection and service. It then makes the information freely available to consumers in the form of insurance company ratings, and through calculators for car and home insurance.
ValChoice released a report last week showing that because of a lack of driving, there is a potential for windfall profits of $100 billion in the car insurance industry.
Exactly what that means for consumers is still unclear.
“The impact of social distancing will soon become very apparent in auto accident statistics,” states the report. If the estimated $100 billion savings is passed to customers, the $250 billion industry would shrink by $150 billion, states the report, adding consumers have a significant opportunity to save money if they take advantage of it now.
Consumers have various options in changing their policies for car insurance, according to Karr, who said they can change their vehicle use from commuter use to pleasure use, or they can adjust the miles they drive or change their coverage levels based on how many vehicles are being utilized, or even opting to cancel collision coverage.
If families have multiple vehicles, now may be a good time to consolidate coverage for just one vehicle, at least temporarily, he said.
“This is going to last longer than one month,” Karr said.
Allstate announced last week its shelter-in-place payback, which will provide more than $600 million to Allstate’s auto insurance customers over the next two months.
“This is fair because less driving means fewer accidents. We are also providing free identity protection for the rest of the year to all U.S. residents who sign up, since our lives have become more digital,” Tom Wilson, Allstate’s president and chief executive officer, said in a statement.
According to a release, Allstate, Esurance and Encompass personal auto insurance customers will receive a shelter-in-place payback that will equate, at least for most customers, to 15 percent of their monthly premium in April and May.
In addition, The Allstate Foundation is committing $5 million that will be distributed to local communities, domestic violence victims, youth in need, first responders and employees.
While these rebate programs are beneficial, meaning carriers are understanding this is a situation they must address, Karr said