Several auto insurance companies in the US are refunding policyholders as lockdown measures introduced in response to the coronavirus pandemic result in lower car mileage and fewer claims. This move will contribute towards changing the image of the industry, improving transparency and fairness.
Accidents are the main reason for motor claims, but the lockdowns imposed around much of the world are essentially leaving a large proportion of the population housebound. In the UK, for instance, GlobalData’s 2019 UK Insurance Consumer Survey finds that accidental damage to an individual’s own vehicle accounted for 33.5% of all personal motor insurance claims in 2019. Damage to another person’s vehicle was the third most common reason for making a claim, representing 17.8% of the total.
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Often, insurance providers base their premiums on mileage estimates. But as governments around the globe have imposed temporary travel restrictions and encouraged companies to allow employees to work from home where possible, car mileage has fallen. Road traffic has reduced drastically, driving down the risk of car accidents. The number of claims has also fallen.
In an unprecedented move, incumbent motor insurers in the US have allocated lump sums to refund policyholders, acknowledging that many customers are no longer using their vehicles to the same extent as in the past. Companies such as Allstate, Geico, Liberty Mutual, and Safeco have all extended credits to customers.
It is possible that insurers in other countries will follow the same steps as those in the US. In the UK, the Association of British Insurers has pledged support for policyholders affected by the pandemic, while Spain’s Mapfre intends to return premiums to its self-employed and SME policyholders. Failing to offer discounts on premiums or add extra months for free at the end of a policy essentially means overcharging drivers for mileage they no longer need.
Insurance, like the wider financial space, has long suffered from consumer mistrust – in many instances, the personal experience of dealing with a provider does not match customer expectations. Transparency of price and terms and conditions are other areas generally causing dissatisfaction. While start-ups have excelled at improving the customer experience, the move towards refunding customers for premiums that no longer match their needs will naturally be seen as a move in the right direction by policyholders.
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By GlobalDataIn this respect, coronavirus offers a good opportunity for insurers to improve customer confidence and trust, particularly at a time when inaction would effectively leave customers paying for a service rendered virtually redundant while the lockdown measures remain in place.
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