Allstate said it would dispatch more than $600 million in shelter-in-place payback checks, while American Family Mutual Insurance Co. said it is returning $200 million to its smaller policyholder base.
The moves highlight a looming dilemma for the auto-insurance industry: A potentially large Covid-19 windfall is taking shape at the same time many customers are suffering financially from lockdowns covering much of the U.S.
Allstate said most of its customers would receive 15% of their monthly car premium in April and May. American Family is returning $50 per insured vehicle. That adds up to what American Family’s actuaries say represents what the carrier already has saved—and expects to save through mid-June—as a result of the reduced claim volume.
“It is real dollars we expected to pay out this year and no longer have to pay out,” said Telisa Yancy, American Family’s chief operating officer. “We are sharing it back right now when our customers probably most need it.”
Compared with last year, claims were down 20% to 40% weekly from March 11—when the World Health Organization declared the pandemic—through April 3, Ms. Yancy said. The Madison, Wis., insurer estimates that policyholders drove 40% fewer miles in the last three weeks of March. The company operates in 19 states.
Allstate Chief Executive Tom Wilson said mileage was down “an unprecedented” 35% to 50% across the U.S. since mid-March, including in states without shelter-in-place restrictions. “By state—boom, it dropped,” he said. The company didn’t release details on the impact on claims.
“We decided to give customers as much as we can” at this early stage to help them manage through the economic downturn. The company is moving now “to treat our customers fairly,” he said.
Trade groups believe the pair are the first car insurers in the U.S. to share their Covid-19-related windfall. Wall Street analysts believe many will follow suit. Mutual insurers like American Family that are owned by their policyholders may find a decision to provide financial relief easier to make, but publicly traded insurers could also opt to pass along some of their good fortune, for reasons including competitive pressure, industry executives said. Allstate is publicly traded.
Across the U.S., just under half of car-insurance premium volume is sold by mutually owned carriers like American Family, trade groups said.
In recent days, Wall Street analysts have begun predicting improved financial results for car insurers because vehicle crashes correlate with miles driven. With tens of millions of Americans working from home or losing their jobs, they are no longer putting in as many miles. That means fewer fender benders on highways now devoid of rush-hour traffic, and fewer collisions with deer in rural parts of the country.
Analysts are flagging the auto-insurance business as a rare bright spot in coming first-quarter results for publicly traded U.S. property-casualty insurers. They expect some other parts of the industry to experience a Covid-19-related spike in claims, such as workers’ compensation coverage for the health-care industry.
While investors will cheer the improved car-insurance results, outsize profits could have bad optics with financially struggling customers.
Since mid-March, consumer-activist groups Consumer Federation of America and Center for Economic Justice have been petitioning state insurance departments to push insurers to share any large profits with customers. So far, the groups have had limited success. Some consumer advocates also are using social media to encourage vehicle owners to call insurers and seek a recalculation of premiums based on their changed circumstances.
“There is no question that the total economic impact of the pandemic will influence the decisions of companies about dividends [to policyholders], but it is too soon to know what that will look like,” said Neil Alldredge, an executive with trade group National Association of Mutual Insurance Companies.
Industry economists and executives said one hesitation in quickly making refunds or reducing rates is that a downturn in mileage after the 2008-09 financial-crisis proved to be short-lived. As the economy improved, consumers revved up their mileage, and claim frequency shot above its precrisis level at some insurers. In setting rates, insurers typically use multiple years’ worth of data, and adjust gradually, in both an upward and downward direction, they said.
Among considerations, according to Mr. Alldredge: Many insurers over the past several years have paid out more in claims on car policies than they collected in premium dollars. New safety gear has increased the cost of repairing vehicles, among other factors.
Many insurers are extending payment plans and waiving late fees as ways to help customers through the tough times, he noted.
Allstate said it also is providing its identity-theft product free for the rest of the year “to all Americans.”
American Family doesn’t disclose its typical customer premium. But nationally across all carriers, the average annual U.S. car-insurance premium was an estimated $1,113 in 2019, the latest data available, according to trade group Insurance Information Institute.
The typical household with American Family auto coverage has two insured vehicles, said Ms. Yancy, so the average relief check will be $100. The insurer drew mileage data from its usage-based KnowYourDrive cellphone app for monitoring driving behaviors. The insurer has obtained regulatory approval from Wisconsin’s insurance commissioner for its refund to policyholders there and is awaiting approvals in other states, the company said.
American Family was founded in 1927 to insure farmers in Wisconsin. It also sells home, life and numerous types of insurance for businesses, and it still insures farmers and ranchers.
In an April 1 note to clients, Morgan Stanley analysts said that publicly traded carriers such as Allstate, Geico owner Berkshire Hathaway Inc., Hartford Financial Services Group Inc., Progressive Corp. and Travelers Cos. would be among the beneficiaries of the decline in people being on the roads.
The financial improvement for car insurers is expected to be even greater in the second quarter because much of the country was put under shelter-at-home orders late in March, analysts said.
At least two states—Alaska and Maryland—have issued statements urging insurers to provide temporary relief to their car policyholders but stopped short of ordering them to do so.
On March 20, for example, Alaska Insurance Director Lori Wing-Heier encouraged insurers to allow policyholders to “self report changes in their exposure or risk profile and adjust premiums accordingly” if they are driving less than estimated when they applied for their policies.