Consumer Groups Want Premium Offsets as Virus Shutdowns Reduce Miles Driven

The shutdown of workplaces and gathering spots around the country to slow the spread of coronavirus may lead to a sharp reduction in auto insurance claims.

Two consumer groups want to make sure that insurance carriers don’t enjoy any windfall.

The directors of the Consumer Federation of America and the Center for Economic Justice on Wednesday sent a letter to state insurance commissioners asking them to direct insurance carriers to offer customers “premium offset payments.”

“The likelihood of a motor vehicle accident drops radically when the number of cars on the road drops radically,” stated J. Robert Hunter, director of insurance for the Consumer Federation. “Consumers who paid auto insurance premiums based on driving an estimated 1,000 miles a month but who are now driving 200 miles a month because they are forced to work at home or their business has closed should get relief from their auto insurers.”

News reports support the consumer group’s assertion that the amount of miles driven has dropped dramatically. The Washington Post reported Wednesday that traffic inside the Capital Beltway moved 19% faster on Monday than on a typical Monday morning. Increased speeds indicates less traffic congestion. WGBH reported that the Massachusetts Department of Transportation recorded similar reductions in traffic on Boston-area freeways.

Inrix, a data analytics firm based in Kirkland, Wash. that studies traffic congestion, said in a March 10 report that average travel speeds in the Seattle area from 8 a.m. to 5 p.m. increased by 30% the day after Amazon and Microsoft instituted mandatory work-from-home policies.

The consumer groups said in the letter that research has shown the number of miles driven is one of the primary determinants of claims frequency.

“Imagine if the population density of New York City transformed into the population density of Idaho overnight,” the letter says. “In terms of drivers on the road, that is exactly what is happening in many urban and suburban areas.”

Specifically, the letter asks regulators to direct auto insurers to offer premium relief to any policyholder who can demonstrate or attest that their miles driven has been impacted because of coronavirus safety measures.

The consumer groups said the insurance departments should require carriers to report monthly on the number of requests for relief received and whether they were granted or rejected. Also, regulators should encourage motorists to contact their auto insurers and ask for relief, the letter says.

“As the frequency of accidents dwindles, the savings to the insurance pool should be returned to the people who have paid for coverage based on an assumed risk level that has been made inaccurate as a result of COVID-19,” the letter says.

Doug Heller, an insurance expert of the Consumer Federation, said his group isn’t asking insurance commissioners to order any specific premium offset. He said the federation would like commissioners to set up a process that would also policyholders to tell their insurer that they are driving fewer miles because of the coronavirus outbreak so they can get a rate reduction for the reduced mileage based on the carrier’s existing rate structure.

Heller said that as late Friday, insurance departments in Vermont and Delaware had responded to the organizations’ letter and promised to look into the idea.

Robert Hartwig, a University of South Carolina economics professor and former director of the Insurance Information Institute, said he doesn’t expect state regulators to pay much attention to the proposal.

Hartwig said the Consumer Federation made a similar demand during the 2008 financial crisis that led to the Great Recession. Regulators understand that insurance rates will respond gradually to any changes in claim frequency and severity, he said.

Hartwig said while claim frequency may drop due to coronavirus shutdowns, they will quickly rebound once the crisis passes and claim severity may increase along with frequency. He said insurance rates are based on years of claims data, not a few months.

“It’s a self-equilibrating system where rates balance out automatically to reflect the underlying frequency and severity trends,” he said.

The Consumer Federation, founded in 1968, describes itself as an “advocacy, research, education, and service organization” on issues affecting consumers. The Center for Economic Justice, established in 1984, advocates for “universal access to significant, direct capital ownership, without redistribution of existing wealth or taxpayer subsidies.”

About the photo: Very light evening rush hour traffic crosses the Zakim Bridge as it passes the Boston Garden in Boston on Tuesday. With concerns over a virus outbreak, many have elected to work from home, leaving what usually would be 10 lanes of dead-stopped traffic quickly passable. (AP Photo/Charles Krupa)