For the reason that insurance claims of any kind are almost always preceded by a calamity or saddening event, no one ever hopes to have to make a claim on their auto insurance policy.
Yet, paying insurance claims month after month without ever filing a claim gets to a point where it seems like all that money is going to waste. Should it though?
The Truth About What Happens To Your Auto Insurance Premiums
Though it is rare, it is quite possible that you can dutifully pay your auto insurance claims and still never find reason to make a claim against the policy.
It needs to be understood, though, that your premiums don’t necessarily count as an income for your auto insurance carrier. The premiums go into holdings for whenever you have to make a claim.
Too many times it happens that the cost of damages and liability from one accident alone can dwarf all the premiums you will have paid for years. That you have not made a claim in years, therefore, isn’t cause to consider your premiums as sunk or wasted.
However, due to an extraordinary circumstance your insurance company can make the decision to pay back part of your premiums, as happened this week:
COVID-19 Impels Auto Insurers To Pay Back Over $800 Million In Premiums
This week news broke that insurers Allstate and American Family Insurance will give back $800 million to their auto insurance customers. Several other auto insurers followed suit, announcing their own plans to give back premiums either as direct refunds or as credits or discounts on their upcoming premiums. This is an unprecedented development, but it is not entirely unexpected:
One of the biggest features of the shelter-in-place measures governments worldwide have instituted in response to the deadly COVID-19 pandemic is the eerily quiet, deserted streets.
Stationery Cars Don’t Crash
As people have stayed at home, so have their vehicles. It follows too that cars that are safely parked in garages don’t crash. The result, and a scarcely comforting silver lining this distressing time is there has been a near historic drop in reported auto accidents.
The sharp decline in accidents as people stay at home (or work from home) has meant auto accident insurance claims have also taken a plunge.
To the ordinary auto insurance buyer, this will appear as a windfall for auto insurers, which it technically is as the fact auto accident benefits claims have fallen to a historic low doesn’t compel them to waive or payback premiums.
Auto insurance companies, however, have taken the opportunity to demonstrate that premiums aren’t exactly an income for them. Rather it is simply money they keep for the assumption of a risk that has a fair chance of playing out and whose costs they will have to cover.
COVID-19 Has Upended Assumptions Auto Insurance Is Premised On
Auto insurance policies primarily cover risks associated with car accidents. For that reason, a person is less inclined to buy insurance for a vehicle they rarely use. As doing so will still be advised, the car owner may look to only insure their vehicle at substantially reduced rates.
Likewise, auto insurers assign a higher risk profile to a vehicle that’s used for daily work commutes than one used for personal or recreational use. This is precisely because there is a greater risk a vehicle that is used frequently has higher chances of getting involved in an accident, which means a higher probability the insurance policy will pay out during the cost of its term.
The COVID-19 pandemic has, however, meant that even people who would have been charged a more expensive premium on their policy on the assumption they will be using their vehicle frequently have no choice but to park their cars and stay at home. If your car is safely parked in the garage, there is virtually no chance you will be making any accident claims on your auto insurance policy.
Auto Insurance Companies Keen To Allay Fears They May Be Exploiting The COVID-19 Pandemic For Profit
As the COVID-19 pandemic hit North America, forcing governments to institute shelter-at-home measures, the risk for which people had insured their cars has fallen away. At least until life returns to as we knew it before COVID-19.
Until we return to the old normal, it means auto insurance companies will be collecting inordinately large sums of money in premiums than they are paying out in claims.
Keen to allay fears the auto insurance industry may be exploiting the unexpected windfall from the drastic fall in filed auto accident insurance claims, insurers have decided to give back premiums for March and April.
The ‘Shelter-In-Place Payback’, as the insurers are calling it, is both a show of solidarity for the struggles their customers are experiencing because of COVID-19 and an opportunity to demonstrate that premiums are accepted for risks that will conceivably play out.
If an insured risk does not play out because an unforeseen circumstance has intervened, the insurer should find it hard to justify accepting premiums, as has happened because of COVID-19.
Hopefully, temporarily, this pandemic has effectively removed the very risks auto insurers assumed they would be covering their clients against and. But, on the other hand, it has presented them with a chance to show how auto insurance works at its most basic.
With all that said:
The Shelter-In-Place Payback Does Not Change Your Auto Insurance Policy’s Terms
It is highly likely that auto insurance companies will increase or extend the premium paybacks should the shelter-in-place COVID-19 guidelines stay in place.
But these paybacks do not in any way mean that your policy’s terms have changed. Your policy’s coverages will remain as they were pre-COVID-19, unless you update it.
It is also true that life may not return to how we knew it before the pandemic as many people will likely lose their jobs. Those that had switched to working from home may decide it is a better way to work. Therefore, it is very likely that we will be driving less than we were before this pandemic hit.
You May Have To Update Your Auto Insurance Policy’s Coverage
Whatever happens after this pandemic is tamed, many of the assumptions you had made when you first bought your auto insurance policy may no longer apply. You may have to renegotiate your premiums and update your policy’s terms.
If you do not update your policy to exploit the fact you now drive less, your auto insurance carrier effectively stands to benefit.
Indeed, critics have even argued that insurers may be benefiting from the reduced driving caused by this pandemic even with the average 15% they are paying back through the Shelter-In-Place Payback. They argue there has been as much as an 85% drop in auto accidents since COVID-19 first forced people to stay at home.
How much auto insurers must payback because of the sharp drop in filed auto accident claims is something they and industry watchdogs will debate and possibly never agree on. What’s plainly clear is that if your auto insurer has not offered you a payback for your reduced driving, you have to change your coverage.
If circumstances have changed so much that your vehicle is now more for personal use than daily work commutes, you have to take the savings opportunity this offers to change coverage and negotiate for a lower premium. If there are 2 vehicles in a policy, 1 vehicle can be placed with OPCF 16. Suspension of coverage, minimum is 45 days. This removes road coverages on the specified vehicles.
However, should your circumstances change again and you have to use the vehicle more frequently, be sure to change the coverage to ensure you maintain adequate coverage. In the meantime, however unlikely, let’s pray that life returns to what it was before this pandemic hit.
If you have any questions regarding your auto insurance policy contact Able Elite Team today. Our team of experts can help you with all of your insurance needs.