Accidents Down, Profits Up as Auto Insurers Cash-In on COVID

While the COVID-19 pandemic has meant a decrease in overall automobile traffic nationwide and an attendant decrease in car accidents, auto insurers are raking in record profits. This despite repeated calls from consumer advocates and some regulators to return a portion of the windfall to the very consumers who need it most — those not driving.

Auto crashes remain low according to new accident data published by the Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ). The groups said that ongoing reduction in pandemic-driven crashes should lead to a new set of refunds for auto insurance customers. The staggering drop in accidents this year resulted in a dramatic drop in claims paid by insurers, handing companies massive windfall profits even after accounting for the woefully inadequate premium relief provided in the spring. The groups sent a letter today to the nation’s insurance commissioners calling for action on refunds.

Data collected by the groups from four states — Colorado, Maryland, Massachusetts, and Texas — representing different population densities and responses to COVID-19 show over 181,000 fewer accidents in those states during the pandemic than during the same period in 2019. This includes a decline of more than 83,000 accidents after May, when most insurers stopped providing refunds and premium credits. With the exception of California, where Insurance Commissioner Ricardo Lara ordered insurers to continue issuing refunds through the summer, the reduction in insurance claims has not led to ongoing premium relief for the many millions of Americans paying insurance premiums based on 2019 accident expectations.

While the data compiled from these states indicates a significant decrease in auto accidents (thus, a decrease in claims paid by auto insurers), the big insurance companies are reporting record profits.

· Progressive reported over $3.3 billion in net income between April and September (Q2 and Q3), which is $1.5 billion, or 82%, more than it earned during the same period last year. On December 4, Progressive announced a $4.50 per share annual dividend for its shareholders (~$2.6 billion), which is nearly double the 2019 annual dividend.

· GEICO’s pre-tax earnings tripled during the second and third quarters of 2020 to $2.34 billion compared with $769 million in 2019. The third quarter earnings are up 83% from $835 million in earnings for the third quarter of 2019.

· Allstate reported auto insurance underwriting income for the combined two quarters of $1.87 billion, more than a billion dollars better than 2019.

In their reports to shareholders, many companies have highlighted the pandemic’s impact on road travel as driving lower losses. Month after month, for example, Progressive has noted that “auto accident frequency continued to be lower on a year-over-year basis due to restrictions put in place to help slow and/or stop the spread of the novel coronavirus, or COVID-19.” Allstate’s financial reports illustrate this impact clearly: even as it added 11,500 auto insurance policies in 2020 and took in $274 million more in premiums from customers during Q2 and Q3 2020 over 2019, its auto insurance losses dropped by $1.4 billion during the same time.

“The public health and economic crises we have faced since March have kept people off the road and sharply reduced crashes, which means insurance claims are way down, with insurers reaping huge profits,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “Most companies refunded some premium in April and May, but, since then, insurance rates have been excessive and insurer profits obscene. Insurers need to give back more to Americans, many struggling with unemployment and other economic hardships.”

A CALL TO ACTION

In numerous letters sent to State Insurance Commissioners, CFA and CEJ urged Commissioners to require auto insurers to give back premium relief to consumers. Only California, Michigan, New Jersey, and New Mexico issued bulletins requiring this relief, with California being the only state that has required auto insurers to continue providing refunds beyond June 2020.

“Most state Insurance Commissioners have not taken the need for refunds seriously enough,” said Birny Birnbaum, Executive Director of CEJ. “They should take steps to make sure that insurance rates are fair and not excessive, since accidents are down and windfall insurer profits are up. The new crash data must be a wakeup call for them to swing into action.”

For more on consumer protection issues, follow Andy Spears

Writer and policy advocate living in Nashville, TN

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store