As we all know, the world has been locked down due to the coronavirus, and most places have put stay-at-home/shelter-in-place or similar orders in force. This has naturally reduced traffic in many areas significantly, depending on the nature of the orders. In an effort to assist insureds, many carriers have reduced premiums, issued refunds, or taken other measures to give insureds leeway because of the significant reduction in usage of vehicles, both personal and commercial. The assumption is that with everyone staying home, accidents naturally are fewer. In actuality, it's more complicated.

ISO has taken a look at the effects of this on the property and casualty insurance market on a short-term basis since this is still an ongoing issue. The effects may have a long-tail even after the pandemic has passed and things return to normal, and ISO will use results of its analysis in future advisory prospective loss costs.

In a circular released on May 1, ISO acknowledged that current loss costs were not developed with the current situation taken into account, as this is an unusual occurrence. ISO looked at Google Mobility Trends, which stated that as of April 11, 2020, travel to workplaces decreased by roughly 38 percent, and travel to retail and recreational areas decreased by roughly 45 percent. Estimates vary by area. Miles traveled reduced by as much as 92 percent in urban areas such as New York City and 45 percent in more rural areas such as Cedar, Missouri.

The assumption is that with less traffic on the roads, then accidents drop, which seems to be holding true. One study from the Road Ecology Center at the University of California indicates that accidents in California dropped by 50 percent after a stay-at-home order was put in place. However, the overall severity of these accidents is increasing.

This increase in severity is due to the rise in the speed of the few vehicles on the road. Speed cameras in New York have been issuing the same number of tickets even with a 51percent drop in cars on the road, and some analysts state that 80 percent more drivers are exceeding the posted speed limit than the number of speeders at this time last year. Minnesota police have reports not just an increase in speeding but an increase in drivers traveling at speeds over 100 miles per hour.

Since data from the first quarter isn't available yet, ISO looked at data from March 2019 and March 2020. While a very early view of data, it supports the idea that while accident frequency is dropping, severity is rising. Even with initial data, ISO is predicting that claim frequency will drop by 30 percent to 60 percent, there will be a 5 percent to 35 percent increase in severity, and a 20 percent to 50 percent drop in pure premium. A variety of factors will affect these numbers, including state traffic levels, the state's stay-at-home orders and when they expire, and types of vehicles on the road. These projections do not include expenses or other aspects that go into determining rates or risks being reclassified due to a reduction in driving.

Likewise, Austin, Texas, has shown traffic volumes dropping by 50 percent, with accidents only dropping by 20 percent and an increase in severe injuries of 15 percent.

If the trend continues, then carriers that have refunded premiums to insureds during the lockdown periods may find that the refunded premiums were needed after all. However, time will tell, and the refunds were also, in part, a goodwill gesture by the industry to support those suffering job loss and other economic impacts of the pandemic.

This premium content is locked for FC&S Coverage Interpretation Subscribers

Enjoy unlimited access to the trusted solution for successful interpretation and analyses of complex insurance policies.

  • Quality content from industry experts with over 60 years insurance experience, combined
  • Customizable alerts of changes in relevant policies and trends
  • Search and navigate Q&As to find answers to your specific questions
  • Filter by article, discussion, analysis and more to find the exact information you’re looking for
  • Continually updated to bring you the latest reports, trending topics, and coverage analysis