The pandemic has not only greatly impacted our personal lives but also the business world—so not surprisingly, the personal insurance industry is feeling its effects. That’s because COVID dramatically changed our lifestyles and our behaviors in ways that are directly related to how we use the things we insure: our vehicles and our homes.
Here is how some of those changes may affect you.
Auto usage down
National data shows that staying at home to prevent the spread of the virus has had a dramatic impact on our driving habits—for the most part eliminating morning or evening commutes, the need to drop off kids at extracurricular events, and outings to restaurants or road trips. People simply drove less. In fact, miles driven were down by as much as 50% during spring lockdowns (National Highway Traffic Safety Administration (NHTSA)).
And insurance companies took note. The reduction in driving early on meant losses during that time were generally lower than the previous year. Many carriers even returned a percentage of second quarter premiums to customers in the form of a discount.
Claims severity up
However, as the year went on, less crowded roads actually had an adverse effect on claims overall. While there were fewer claims, the severity of the incidents increased dramatically. Empty roads provided more opportunity to speed, and distracted driving—especially phone use—continued to be a contributing factor. Traffic fatalities increased 18% over the first half of last year (NHTSA).
This does not bode well for insurance rates. Just a year ago, insurance companies across the country were considering building the savings they saw in March and April into their rates, but now that is less likely to happen given the claims experience since.
The concern is that driving patterns and usage will return to pre-COVID levels, but risky driving behavior like fast driving will continue—keeping claim severity high and putting upward pressure on rates.
Costs on the rise
Member Benefits’ auto insurance experience has been similar to what has happened nationally during the last year. Mike Godby, Insurance Services Operations Manager for Member Benefits, says, “There was a clear decrease in auto claims during March and April of 2020. Like other insurers, we gave premium back to members for that period, but the benefit of the stay-at-home ordinance was short lived. Losses increased as the year went on, which offset any savings from the reduced number of claims earlier in the year.”
And supply chain disruptions caused by the pandemic didn’t help. When materials and parts are in short supply, prices rise and repairs are delayed. But even before the pandemic, claims costs were on the rise, says Mike. Contributing factors include ever-rising medical costs and advanced vehicle features like sensors and air bags that are designed to keep you safer. “Those advanced features in your car are very expensive to replace. A simple mirror or a windshield replacement isn’t simple anymore. They have sensors and special glass with forward facing cameras. Cars are designed and engineered for safety so that when there is impact, it does more damage to the car but keeps the occupant safer. It’s a trade off—a good one—but it increases the repair costs and ultimately premium rates,” he explains.
On the home insurance front, the impact has been a bit different. Because Americans have been using their houses more and differently, there has been a significant increase in home improvement projects—up almost 50% from the same period last year.
Surveys of homeowners point to two things driving this trend—time and necessity. Almost 70% said they had the time to undertake a project, and half indicated that time at home made them more aware of things that needed doing (Porch.com and Houzz.com).
“Our homes suddenly became office space and classroom space,” Mike adds. And with families co-existing at home 24/7, there was also a need for more living space—indoor and outdoor. Homeowners added on rooms and remodeled at record rates to accommodate their new lifestyle. Plus, the installation of decks, patios, and pools soared.
What does this mean for your home insurance?
Mike says it means you need to rethink your coverage and review your policy. “You want to make sure your coverage is still appropriate. Home improvement projects may have changed the value of your home. If you modified your basement, you may want to add or increase sewer backup coverage, especially if you’re using the space for work and have equipment that would be costly to replace.”
You should also consider changes in liability as well. For instance, were you one of the over 11 million U.S. households that got a new pet during the pandemic? How about a boat, motorcycle, or trampoline? These can increase your liability.
“Trampolines are never a good idea. They are dangerous and cause many serious injuries. And dogs also raise your liability risk,” Mike points out. Many insurance companies won’t cover you if you have a trampoline and some dog breeds are restricted as well.
There may also be changes to your liability exposure if you are working from home or self-employed and operating out of your home. Home insurance excludes liability for business, and Mike recommends that in-home business owners should contact their business insurance carrier to review their coverage needs. For remote workers, there is an endorsement that can be added to your home insurance that boosts liability coverage for your home office. “Whether you’re working at home for your business or as an employee, you should confirm where you are securing your liability coverage,” he says.
Member Benefits was able to move the majority of staff to a remote-work environment early in 2020. “The transition went well,” Mike says. “We did have to rethink a few things and work with our adjusters in the field on protocols to minimize contact and to maintain social distancing, including wearing masks, when person-to-person contact was necessary.”
He adds that the biggest ongoing impact of moving staff to a remote work environment is social. “Most staff miss the camaraderie and collaboration with their colleagues and meeting with members. But regardless of our physical locations, we’re still ready and willing to help answer your insurance questions.”
It’s a good time to reevaluate your insurance needs
The pandemic transformed our lives on every level, and it’s hard to predict what the world will look like when the dust settles. In the meantime, be aware that because your lifestyle may have been altered by the events of 2020, your insurance needs may have also changed.
Now is a good time to:
- Review your policies and make appropriate changes to coverage.
- Consider increasing your deductibles to reduce your premiums.
- Ask about discounts that apply to save more.
- Give us a call or go online for an insurance review or price quote.