Impact of COVID-19 on OH Auto Claims
Friends and contacts of mine in the insurance world have been debating the likely impact of COVID-19 and trying to accurately price auto insurance financial results. Consumer groups are also calling for insurance companies to provide relief to customers in recognition of drastic changes in vehicle usage; for example, this is just one such press release done by the Consumer Federation of America: https://consumerfed.org/press_release/social-distancing-and-less-commuting-fewer-drivers-and-miles-driven-fewer-auto-accidents-lower-auto-insurance-premiums.
It may seem like quantifying the COVID-19 impact on auto insurance costs would be easy, but there are many factors that make it difficult for insurers to do so. The following are just a few of the issues:
Most insurers don’t have enough data to quickly and credibly quantify the impacts.
COVID-19 cases and associated restrictions haven’t been applied uniformly across the US; therefore, the impact will be different for different geographies.
The current crisis may change normal customer loss reporting patterns making the estimation of claims that haven’t been reported more difficult.
Current restrictions will delay the settlement of many known claims and may increase the ultimate costs due to issues with repair resource availability, supply chains, etc.
Fraud may be higher as businesses and individuals are more tempted to exaggerate claims to help mitigate the extraordinary financial burden.
This doesn’t mean that it is impossible to study and quantify the impacts. I recently became a strategic advisor for TNEDDICA® whose mission it is to improve traffic safety through data and analytics. Yiem Sunbhanich, TNEDICCA’s CEO, shared relevant analysis his data scientists performed on their data to study the impact of COVID-19 on accident frequency and severity.
Since TNEDICCA has access to all accidents each day in many locations, he and his team have been able to deliver valuable insights for their clients. The following chart shows a comparison of the daily accident rates in Ohio for the first quarter of 2019 versus 2020 within the context of the rise of COVID-19:
Not surprisingly, the drop in accidents in Ohio tracks very closely with the rise of COVID-19 cases and restrictions. According to this data, the accident rates are down by more than 40% in March when COVID-19 began to have a major impact on residents of Ohio. TNEDDICA has similar information for other states.
The current discussions have understandably centered around identifying and quantifying the downward impact that COVID-19 voluntary and mandated restrictions are having on auto insurance claim costs. While we don’t know when, I am confident we will ultimately win this “war”. That means insurers will also need to understand the impacts as we transition to life after COVID-19 and that could be a challenge. Frankly, it will be more important for insurers to get this right as they need to have adequate reserves on hand to pay claims as they arise during a period where it will be even more critical for individuals to be made whole quickly.
If we knew definitively that life would return to normal, this would just be a timing issue. However, it is possible that driving patterns may never return to what we viewed as normal before COVID-19. For example, some companies who used to require employees work in the office may decide to offer work at home alternatives now that they have the infrastructure in place. Additionally, some people may have grown accustomed to and enjoy walking in situations where they would have previously driven.
Yiem and his team are continuing to track this information and will also be positioned to give their clients an early indicator when the number of accidents bottoms out and begins to rise again. Furthermore, they will be able to identify whether or not the “new normal” is the same as the old one.
Kudos to TNEDDICA for excellent work at a time when we are all craving information about the far-reaching impacts of COVID-19. If you want to learn more about TNEDDICA, the following is their website: https://www.tnedicca.com/