Changing driving patterns in recent weeks offer a reminder of the fluidity of the situation facing private-passenger auto insurers as pandemic-induced restrictions ease in many U.S. states.
In a development with implications for the future application of monthly premium credits, three of the nation's top seven companies in that business line have observed in recent days that the number of miles driven by policyholders have increased from late March and early April lows.
Each of the top 15 private auto insurers have introduced some form of policyholder relief. In some cases, those issuing monthly premium credits have held open the possibility of continuing them beyond their initial limited terms to the extent the reduction in miles driven and, in turn, the number of accidents persists.
Members of the Farmers Insurance Group of Cos. indicated in a series of recent filings with state insurance regulators that they intend to offer a 15% reduction in a one-month portion of full-term premiums as of May 1 for Farmers-branded private auto policies. Farmers extended a 25% reduction to in-force policyholders as of April 1 as part of its Social Distancing Temporary Relief Rule.
"Following the sharp reduction and miles driven and claim frequency in March, Farmers is now starting to see an increase in claim frequency which is why the May 1, 2020, reduction is less than the previously filed reduction in April 1, 2020, premiums," Farmers Insurance Exchange said in what is a representative example of the group's recent filings.
Progressive Corp. and Allstate Corp. offered quantitative statistics to support similar observations during recent conference calls.
Progressive President and CEO Tricia Griffith reported that daily miles driven had declined by only 14% on a countrywide basis during the weekend of May 2 and 3 as compared with pre-pandemic levels. The rate of decline at been 40% as recently as the end of April, though she added that the rate of decline had moved back to the 20% to 25% range on May 4.
Allstate, citing a variety of insurance and noninsurance sources, observed in a May 6 presentation that declines in miles driven have varied between those states with stay-at-home requirements and those without, as well as among urban and rural drivers. The data show that approximately 21% of drivers had actually been traveling greater distances after the onset of the pandemic.
Beyond short-term fluctuations in driving patterns, Allstate executives discussed the potential for future disruption to historical patterns in miles driven to both the upside and downside. The lifting of stay-at-home restrictions may release pent-up demand for travel, but commutes could be reduced in the future should remote working become more prevalent.
The group led by Nationwide Mutual Insurance Co. indicated in a communication with state insurance regulators that its $50-per-policy credit is modeled upon "a v-shaped frequency effect that started in mid-March, peaks in April at a reported-claims level 40% lower than expected, and rolls off as the stay-at-home orders begin to expire in May," offset in part by a temporary 5% impact to claims severity.
What the premium relief measures mean for auto insurers' results vary by company and, in particular, their chosen method of accounting for the associated costs.
A bulletin issued by the Missouri Department of Commerce and Insurance has been helpful in that regard as it strongly recommends that companies filing COVID-19 premium relief measures indicate how they will account for any "premium dividends," among other things.
Subsidiaries of Allstate and Progressive confirmed in Missouri filings that they will account for their respective premium relief measures as underwriting expenses.
"While premium was a basis for calculating the payback to provide fair proportionality to the individual policyholders, the payback is not premium and is not tied to any actuarial ratemaking methodologies which are prospective in nature," Allstate companies said in a Missouri filing. Progressive arrived at a similar conclusion, according to a recent filing in the Show-Me State.
Others, such as the groups that include Nationwide Mutual, American Family Mutual Insurance Co. S.I. and Automobile Club Inter-Insurance Exchange, have characterized their accounting methods as a "decrease," "adjustment," or "reduction" in premium. State Farm Mutual Automobile Insurance Co. is issuing a policyholder dividend, but State Farm Fire & Casualty Co.'s relief comes in the form of a premium credit.
United Services Automobile Association recently filed for a second policyholder dividend since the outbreak began, this time in an amount equal to 20% of April's premium. Its previous filing had been for a dividend of 20% of two months' premium based on March results.