A motor insurance perspective on Coronavirus
Events are being called off, borders are closing and swathes of the UK population are expecting to stay at home for weeks or months. People and businesses are braced for the biggest peacetime disruption in living memory. Many are turning to their insurance providers to see what protection their policies provide.
Are these insurers facing their infamous 1 in 200 year event? Has COVID-19 put the industry on life-support or will it pull through with just minor symptoms? In this blog, we examine the possible impact of the new coronavirus on motor insurance – a core product for many well-known insurance brands. So what might insurers expect to see in the coming months?
Claims frequency
With social distancing measures in force, we will all be travelling less and that could translate into fewer accidents and thus fewer claims. On the flipside, people’s desire to avoid public transport might push them to get behind the wheel for journeys they previously wouldn’t.
The impact of these extra short journeys shouldn’t be underestimated. The majority of accidents occur in towns and cities and the chance of an accident is typically much higher at the start and end of a journey. The quick trip to the supermarket down the road (perhaps in a bit of a hurry to avoid empty shelves) could be just as risky as the hundred mile trip to visit relatives.
The time of day we use our cars is going to change too. Rush hour where I live has been noticeably quieter recently, with an increasing proportion of the workforce working from home. Less crowded roads seem likely to be a positive for driver and insurer alike.
Whichever way you look at it, COVID-19 is going to alter the way we use our vehicles, and insurers will need to monitor emerging experience very carefully.
Repair costs
Damage claims are invariably cheaper for insurers if they can get your car back on the road quicker. For own damage, this means a prompt repair if the customer is at fault. For third party damage the same applies, but this is best achieved through initiating contact with the third party as soon as possible after the accident.
There seems little doubt that COVID-19 will disrupt insurers’ intervention and repair processes, thus making claims more expensive.
The supply of parts is likely to be disrupted, with factories around the world reducing capacity and expected difficulties in moving freight across closed borders.
Insurers’ garage networks may find themselves under increased pressure. With government advice on self-isolation, many will find themselves short-staffed in the months ahead, increasing repair times significantly.
Insurers’ strategies for minimising third party claims may also be impacted. It may be harder to contact third parties to offer free car hire and repairs, meaning missed opportunities to mitigate costs.
Resource shortages in the claims team (eg due to sickness) may give rise to further claims “leakage” in a number of areas.
The industry has already seen significant inflation on repair costs in recent years. At this stage it seems likely that COVID-19 will add further fuel to the fire.
Injury costs
Any predictions of injury costs should be treated with caution at the best of times, but possible impacts include the following:
The implementation of the injury tariff structure from Civil Liabilities Act will almost certainly be put on hold as the government grapples with the COVID-19 crisis. This was recently delayed (pre-coronavirus) from April to August but the remaining pre-implementation changes are unlikely to be a priority in the coming months. Many insurers will have already started introducing some benefit from the tariff structure into their prices, so any delay could also impact prices. This could lead to adverse publicity if the industry materially raises prices during a crisis.
Settlements of existing claims will be delayed. The government has already announced that court cases expected to exceed 3 days will be postponed. Further disruption to the legal system looks likely. In the emerging claims data, this might initially look like favourable Actual vs Expected experience but more likely it will increase ultimate costs as claim settlements are dragged out over time.
There may be various impacts on the medical outcomes of seriously injured claimants. If one thing is certain, it’s that the COVID-19 pandemic will push the NHS to its limit and beyond. If intensive care beds are at capacity this could give rise to a greater proportion of fatalities following serious accidents. In isolation this would tend to reduce costs to insurers, but more likely there will be increased claim costs from cases where claimants survive but in a worse state of health than would previously have been the case.
Other impacts
Theft claims have at least some degree of correlation with the economic climate. If, as seems increasingly likely, the pandemic leads to a global recession and to significant redundancies, I would expect to see further increase in theft frequency.
Fraud is similarly correlated with the economic climate. Insurers have invested significantly in recent years to improve their fraud detection processes. It seems likely that these will be put to the test.
Overall, it is far too early to understand the full extent and implications of COVID-19 as things are still changing day-by-day. What is for sure is that motor insurers face an uncertain time ahead and should be planning how to identify the inevitable changes in claims trends as early as possible, to mitigate the risk to their books.