How COVID-19 Affected Car Insurance Customers
Christopher-Hundley
· 3 min read
From funeral attendance limitations to restricted playground activity, no corner of society has been untouched in some way by the COVID-19 pandemic. The
car insurance industry
has also adjusted to the economic fallout from the pandemic. With record-setting unemployment at the outset and a labor market not fully recovered,
car insurance companies
have had to adapt to meet the emerging needs of their customers.
COVID-19 caused insurers to be lenient on payments
Auto insurance is a necessity. You must demonstrate that you have the assets necessary to cover the damages from an accident or a collision in every state.
In most states
, auto insurance provides that proof and is legally required to operate a vehicle in those jurisdictions. However, if times get really tough, some drivers might drive around without insurance. Through the pandemic, auto insurers sought to work with many auto insurance policyholders who faced economic hardship to keep them insured.
As per
U.S. News & World Report
, many suspended automatic cancellations of policies for nonpayment. Some companies extended the grace period by which a premium was due or even allowed customers to skip a payment.Others developed forbearance programs that allowed policyholders to defer their premium payments for a fixed term. By allowing car insurance customers facing hardship to defer payments, insurers hoped that these customers might find their economic circumstances improved.
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Car insurance customers offered partial premium refunds
MORE: How COVID-19 Affected Car Insurance Companies
Insurers derive revenue from insurance premium payments, and they have to cover the costs of claims. Depending on their size, an insurer's bottom line can be upended by a natural disaster that damages many cars in a specific region.
During the pandemic, almost the opposite happened. The lockdowns and expansion of remote work meant that fewer drivers were on the road. Accordingly, there were fewer auto claims in 2020, with the biggest drop occurring in the second quarter.
When the pandemic started, insurers received 40% fewer claims than in 2019, as per
ADAPT
. This decline continued into the third and fourth quarters of 2020, with claims decreases of 20% compared to the same period in 2019.Workers with secure remote employment might look at their monthly premium and wonder why they are paying a significant sum for protection that might be unnecessary. One tactic insurers used to retain existing car insurance customers was to provide widespread discounts.
Nearly all auto insurers refunded a portion of their customer's premiums during this period. This tactic also helped insurance companies stay ahead of state insurance regulators and consumer advocates.
Did COVID-19 cause customers to switch insurers?
In some cases, car insurance customers who were no longer commuting reached out to their insurers and asked for
adjusted rates
. Some insurance companies did, in fact, offer these rates, especially to insurers with a solid auto insurance score, history of on-time payments, and stable employment.By reducing their coverage, they saved money, while insurers received less revenue. In other cases, consumers were able to see significant savings by opting for a new insurer.
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