Insurance rates go lower as less traffic translates to fewer accidents
“There’s no question that frequency of claims is down enormously since the pandemic started, and that has translated into a competitive market for rebates and credits,” R.J. Lehmann, director of finance, insurance, and trade for the R Street Institute in Washington, told the Washington Examiner.
However, Lehmann remains “a bit more skeptical of a full-blown price war next year.”
“Insurance rates are prospective, not retrospective. You set a level based on the claims experience you will face, not the claims experience you have faced,” Lehmann explained. If typical traffic patterns resume, he expects the claims to be close to normal as well.
Lehmann and the NHTSA worry about the size of the claims that are getting filed. “On a per-claim basis, severity actually may be somewhat worse than usual,” Lehmann said. “The supposition is that, with fewer people on the road, drivers can go much faster. Thus, when they crash, the crashes are much worse.”
A spokesperson for NHTSA told the Washington Examiner: “Due to recent anecdotal reports of increased speeding and reckless driving on emptier roads in recent months, [we] launched a new summer ad campaign to remind drivers to drive safely as Americans get back out on the road.”
Lehmann predicts some auto insurance rates will fall significantly but argues that many cuts will be localized.
“In some states, notably in California, rate filings rely on formulas that draw directly from past claims experience. Where that’s the case, regulators likely will order rate reductions. In markets like Illinois, where rates are set by competition, I would imagine rates to be roughly stable,” Lehmann said.