Will the End of Stay-at-Home Orders Increase Driving Risks for Auto Insurance Companies?

A state-by-state shutdown of economic activities has decreased driving habits. Millions of cars across the nation remain in parking garages and driveways. Many different risk factors influence car insurance premiums. Factors such as driving experience, time on the road, and the age of the driver all often matter. How will the lifting of stay-at-home orders impact premium costs and risks for auto insurance companies?

Despite the number of vehicle miles driven increasing from 2018 to 2019, drivers are practicing safe driving techniques. The National Highway Traffic Safety Administration (NHTSA) reports that, based on initial data for 2019, traffic fatalities have fallen for the third year in a row. The COVID-19 pandemic of 2020 has further reduced the number of cars on the road. However, the jury is still out regarding the effectiveness of stay-at-home orders. It is difficult to say if driving risks will remain low or increase as these orders disappear.

Driving Behavior Data Since COVID-19 

New York City, one of the hardest hit areas in the United States, has seen a decrease in the number of drivers. However, traffic speeds of those on the remaining on the road are 50% and 60% higher during the morning and evening commutes. Increases in speeds for commuters were also experienced in Seattle and Los Angeles, two cities in states that imposed strict stay-at-home orders.

A reduction in traffic congestion may account for some of the increases in speed. Changes in the number of cars on the road, as restrictions go away, may lead to a long-term change in driving behavior. That could help lower auto insurance rates. As drivers become more accustomed to working from home, the need to commute might decrease. That could lead to fewer accidents, and thus fewer claims. Enforcement efforts might also change to bring traffic speeds in line with posted limits, making the roads safer.

Auto Insurance Companies' Responses to Changes in Driving Behaviors 

The current state of driving created by the COVID-19 crisis has resulted in fewer claims. This has also led to higher profits for some car insurance companies and the institution of premium rebate programs. Northfield, IL-based auto insurance company Allstate Corp. saw a 47% increase in its net income in the first quarter of 2020. That increase included the impact of a $600 million program launched by the company called “Shelter-in-Place” Payback. The program rewarded policyholders who reduced their driving as a result of the pandemic. Many received premium refunds.

Programs like this one recognize the lower risk policyholders pose because of their reduced driving. Some companies might continue to encourage drivers to reduce driving long after the crisis ends. The data, although not definitive, indicates that driving risk is manageable when there are fewer drivers on the road.