Auto Insurance Carriers Under Pressure to Lower Premiums Due to Stay-in-Place Orders

Sparsely trafficked streets and interstates have become a common sight amid the COVID-19 pandemic, but roadway congestion is not the only coronavirus-related impact on motorists.

Auto insurance carriers across New Jersey and the U.S. are starting to pay back millions of dollars to policy holders who are driving less during times of social distancing.

New Jersey Stay at Home Order Updates

New Jersey, like other states, has implemented a number of restrictions and policies in response to the novel coronavirus pandemic. That includes Gov. Phil Murphy’s March 21 statewide Stay at Home Order, which directs residents to remain at home and to travel only for essential needs, mandates work from home arrangements for workers when possible, and prohibits social gatherings, among other directives.

The restrictive measures are part of a larger effort to strengthen social distancing and mitigate the impact of COVID-19 on New Jersey’s health care system – and they’re being regularly updated as new developments unfold. For example:

• Non-Essential Construction Halted: A new Executive Order effective Friday April 10 bans non-essential construction throughout the state, and imposes additional mitigation requirements on essential businesses, including occupancy limits, infection control practices, and designated hours of operation solely for high-risk individuals.
• Insurance Relief: In addition to federal relief packages and regulatory changes that help struggling families stay afloat by deferring certain financial obligations (including rent, mortgages, and student loans), Gov. Phil Murphy signed an executive order that provides a 60- to 90-day grace period to New Jerseyans struggling to pay insurance premiums because of the pandemic. The move extends the grace period for residents who can’t pay health or dental premiums by 60 days, and 90 days for home, auto, and renters insurance. The order also prohibits insurers from demanding unpaid premiums be paid at once when the period ends, and instead requires payments to be spread over the remainder of the insurance term.

Auto Insurers Face Growing Pressure Over Premiums

Extensions for paying insurance premiums will help numerous residents struggling to stay afloat amid the coronavirus’ economic fallout; in New Jersey alone, nearly 600,000 new unemployment claims have been filed since March 15. However, extensions don’t address the underlying fact that most people, abiding by social distancing and shelter-in-place orders are driving far less, if at all, than they did during pre-pandemic times.

That leads many to wonder: Why are motorists still paying so much for auto insurance?

There may not be a precise answer, but growing concerns are a sign that insurance carriers have yet to figure out exactly what they’re going to do. As many motorists see it, stay-in-place orders and reduced driving means insurance companies will be paying out fewer claims for the foreseeable future. Why would they have to pay the same amount for auto insurance when their risk is greatly reduced?

As of now, some insurance companies have recognized the changing circumstances. Allstate and American Family Insurance, for example, announce on Monday April 10 that they will return roughly $800 million to auto insurance customers.

• Allstate stated it is refunding roughly 15% of premiums paid in April and May – which equates to a little over $600 million – to all policyholders with personal auto insurance, regardless of whether their state has an official stay-at-home order.
• American Family will return roughly $50 per vehicle via a one-time payment, for a total of roughly $200 million.

Both insurers are also expanding coverage for policyholder who use personal vehicles to deliver food, groceries, medicine, and other goods.

Is it Enough?

According to some critics, policyholder paybacks may be a nice gesture, but the numbers suggest they may not be enough. According to publicly available data, Allstate pays out over $1 billion a month in auto insurance claims. Some experts estimate those claims have dropped by as much as 85% due to reduced driving and less accidents.

Apart from fair paybacks, advocates are also pushing for premium returns from other insurance carriers, many of which are grappling with doing right by policyholders and doing right by shareholders.

Auto Insurance During COVID-19

Regulators and insurers are working to strike a balance on ways to expand temporary arrangements and provide relief to policyholders affected by COVID-19, but for those most deeply affected, there may be ways to find savings.

While you’ll still want to ensure you have coverage in the event that you do need to drive, experts say drivers should call their insurance company and see if they have options, such as temporarily changing coverage on a vehicle used for work to personal use if stay-at-home orders have closed their business (just be sure to change back once work and commuting return to normal). If carriers are not offering money back, it may be a good time to shop around for quotes, and to consider more coverage, such as underinsured / uninsured motorist (UM / UIM) coverage if any companies are offering incentives.

While it may be too soon to know how far the coronavirus’ impact will extend for auto insurance carriers, motorists should remember that auto insurance is essential, and that accidents can still happen. At Levinson Axelrod, P.A., our legal team is complying with the stay-at-home order and working remotely to serve new and current clients. If you have a potential case to discuss, contact us.