If fewer people are driving, shouldn’t car insurance be cheaper?


We received an unexpected surprise via email this week from USAA, the company we use for a variety of insurance and financial services. Unprompted by us, they indicated that we would be receiving a significantly increased rebate on our automobile insurance. When you don’t have an accident all year, they generally send you a small rebate, but this one was orders of magnitude larger than what we typically receive. The reason? People are driving so much less during the coronavirus lockdowns that far fewer of their customers are getting into accidents and filing claims.

I’ll confess that I was shocked. There was nothing compelling them to do that. They could have just pocketed the premiums everyone is paying and racked up a tidy profit for the quarter. But instead, they mentioned how everyone was being impacted by the pandemic and they simply wanted to do the right thing. When I started checking around, I found this article from David Lazarus at the Los Angeles Times, who has been asking the same question of all the major insurers. It turns out that USAA isn’t the only company exhibiting such generosity, but not everyone in the industry is following suit.

I reached out to every major vehicle insurer. Some have recognized the changed circumstances, others have not.

On Monday, Allstate said it will give its customers a 15% break on their monthly premiums for April and May.

The company said it will return more than $600 million to policyholders through credits to their bank accounts, credit cards or Allstate accounts.

“This is fair because less driving means fewer accidents,” said Allstate’s chief executive, Tom Wilson.

In addition to refunding $600 million (!) to their customers, Allstate will provide everyone with free identity theft protection for the rest of the year. That’s a major hit to what could have been a much more profitable quarter, but they are doubtless purchasing a lot of goodwill from their customers. (By the way, they are offering the free identify protection to everyone in the country, not just their customers, just in case you want to give them a call.)

Other companies spreading the wealth around include American Family Insurance, who will be refunding $200 million to their customers.

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Not everyone is being so generous, however. When Lazarus contacted Progressive to see if they would be reducing rates and partially refunding premiums he was told to contact an industry lobbying group. AAA similarly told him to speak with an outside source. Geico, State Farm and Farmers didn’t even respond to his requests.

It’s unclear how much power the government has to regulate this situation. In California, Insurance Commissioner Ricardo Lara is quoted as saying that he will be “reviewing all insurance company actions to make sure policyholders are being treated fairly.” While I’m all for seeing consumers getting a fair shake, that sounds rather ominous. He claims that the office of the Insurance Commissioner has the authority to ensure policy-holders are not “overpaying” during this national emergency.

But insurance companies are not government agencies. They’re in the private sector. When does the state government assume the power to decide that a company is making “too much money?” Granted, automobile insurance is in something of a unique category because the government forces you to purchase it if you own a car. (Unless you can afford to post a bond equal to the amount of the minimum level of liability insurance.) But still, it seems to me that they can generally charge whatever the market will bear and those companies have plenty of competition.

This sounds like a situation where the free market is fully capable of rewarding good behavior and it’s already starting to do so. Lazarus interviewed one driver who is a customer of AAA and hasn’t been notified of any sort of refund coming his way. He’s quoted as saying that he plans to remember “who had his back” during the pandemic and “who didn’t.” It sounds to me like that’s one person who will soon be shopping around for another provider.

As for the companies who are offering refunds, they will probably profit from their decisions in the long run. I know that we’re feeling a lot more positive about USAA this week, though we’ve always been pretty happy with the service they provide. And when word of these refunds begins making the rounds, the other companies will either be shamed into following suit or they’re going to start bleeding off customers. Honestly, I don’t think we need the government’s help on this one.

DISCLOSURE: USAA is not a sponsor and did not pay us anything. They just happen to be the company my family uses. I’m neither endorsing any of the companies mentioned above or trying to steer people away from them.

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