The Cannonball Run is a famous, illegal, timed race between New York and Los Angeles, which is why winners get the asterisk “allegedly.” Driving Magazine reported in late May: “Since quarantines first started, seven different Cannonball records have allegedly been broken.”
Cannonball street racers were allegedly shattering that record, again and again, because fewer cars were on the streets and highways to slow them down. Many police officers were skittish about interacting with more people than they absolutely had to, given uncertainty about how COVID-19 was transmitted.
The sudden reduction in vehicular congestion also reduced the number of accidents and the claims for those accidents.
The National Highway Traffic Safety Administration reports that between January and March of this year, there were 70 fewer fatalities than during the same period last year, or about a 1% decrease. January through March also saw a falloff of over 40 billion miles driven on the roads, with much more reduced traffic to come later in the year.
Companies that sell auto insurance are looking for ways to adjust to this new reality. Those adjustments may lead to intense price competition next year. Some are even using the term “price war” to describe it.
“There’s no question that frequency of claims is down enormously since the pandemic started, and that has translated into a competitive market for rebates and credits,” R.J. Lehmann, director of finance, insurance, and trade for the R Street Institute in Washington, told the Washington Examiner.
However, Lehmann remains “a bit more skeptical of a full-blown price war next year.”
“Insurance rates are prospective, not retrospective. You set a level based on the claims experience you will face, not the claims experience you have faced,” Lehmann explained. If typical traffic patterns resume, he expects the claims to be close to normal as well.
Lehmann and the NHTSA worry about the size of the claims that are getting filed. “On a per-claim basis, severity actually may be somewhat worse than usual,” Lehmann said. “The supposition is that, with fewer people on the road, drivers can go much faster. Thus, when they crash, the crashes are much worse.”
A spokesperson for NHTSA told the Washington Examiner: “Due to recent anecdotal reports of increased speeding and reckless driving on emptier roads in recent months, [we] launched a new summer ad campaign to remind drivers to drive safely as Americans get back out on the road.”
Lehmann predicts some auto insurance rates will fall significantly but argues that many cuts will be localized.
“In some states, notably in California, rate filings rely on formulas that draw directly from past claims experience. Where that’s the case, regulators likely will order rate reductions. In markets like Illinois, where rates are set by competition, I would imagine rates to be roughly stable,” Lehmann said.
Michigan and Louisiana have recently passed tort reform legislation that should drive rates down as well, he added.
Marty Stauffer owns the insurance brokerage Stauffer Insurance in Lynden, Washington. The Washington Examiner asked him about his clients’ reaction to the monthly rebates of roughly $10-$20 that many auto insurance companies have mailed back to drivers for several months.
“Nobody was upset by it. Thank God for mobile checking. You can just take a picture and, boom, it’s in your account. But nobody seemed uber impressed with it, either,” Stauffer said.
For next year’s policies, “all signs point to rate decreases due to lower claims,” he said. Stauffer thinks the low level of claims this year will give most insurance companies no other realistic option but to compete on price.
Looking out of his office to the traffic on the street, Stauffer speculated, “I definitely do not expect a big jump [in claims] between now and the end of the year.”
