Post-pandemic trends in auto insurance

While it may be too early to tell how the end of provincial COVID-19 restrictions are influencing auto insurance claims, industry experts are bracing for higher claims severity, a return to pre-pandemic levels of traffic, higher auto rates due to inflation, and more granular pricing models.

During the height of the pandemic in 2020, AM Best experts found that while auto claim frequency declined, claim severity increased.

Gordon McLean, senior financial analyst at AM Best, says this trend was partially attributable to drivers increasing their speed on open roads.

“If you’re driving on an open road, the speeds creep up, as opposed to if you’re driving on a pre-pandemic highway, where you’ve got a car beside you and a car in front and behind you,” McLean says. “That might be pacing traffic speeds.”

With pandemic restrictions now almost fully lifted across Canada, McLean speculates there’s a potential for aggressive driving to increase

Traffic congestion levels across most major Canadian cities were up in 2021 from the year previous, according to data from traffic indexing company TomTom.

Vancouver’s congestion levels were at 33% in 2021, accounting for 10% more traffic than in 2020. Overall, however, Vancouver had 15% less traffic in 2019 than in 2021. Montreal (at 24% congestion in 2021) had 20% more traffic in 2021 than it did in 2020, but had 17% less traffic in 2019 than in 2021. Toronto (24% in 2021) had 9% more traffic in 2021 from 2020, but 27% less traffic in 2019 than in 2021.

Ratesdotca insurance expert Tanisha Kishan predicts driving habits will shift back to where they were pre-pandemic.

“We’re probably going to start to see things go back to what it was pre-pandemic, where people are going to be commuting more, they’re going to be driving more,” Kishan says. “When we do see more vehicles on the road, that could correlate to more accidents down the line.”

But with many insureds going back to work in-person, Raymond Thomson, associate director at AM Best, speculates leisure driving will be down. “There’s maybe a little bit of an offset there; more miles coming on, more miles coming off.”

Thomson also says driving patterns could also be offset by other factors that may keep people off the roads, like the rising price of gas.

Supply chain issues may also add strain to the claims cost. “With the current environment, there’s an additional add-on of the availability of parts,” McLean says.

During the pandemic, McLean notes many insurers were reducing premiums for policyholders.

“Insureds were not out on the roads; it didn’t make sense to be charging full-on rates for the risk exposure of a car sitting in a garage or a driveway,” McLean says.

But as inflation rises, so will rates and, in turn, claims costs.

“We have seen the overall cost of claims go up,” Kishan says. “The cost to repair a car — it’s harder to find parts, and the parts in itself could be more expensive. There’s a labour shortage, so all of those increase the price overall.”

When it comes to insuring auto policyholders in a post-pandemic environment, McLean says many insurers are looking towards usage-based insurance.

“I think insureds are increasingly savvy in how they’re buying insurance,” McLean says. “They’re looking to buy the most cost effective [policies], but they’re also looking to buy in the most efficient way, and then companies are responding to that.”

McLean says a number of insurers are also utilizing multivariate pricing—a model of underwriting that forecasts different variants and scenarios to determine “more incrementally what is the accurate rate that we should be charging.”

These forms of underwriting will become more popular as companies continue to invest in improving their data analytics and modelling capabilities, Rosemarie Mirabella, director at AM Best predicts.

“There isn’t any line of insurance business, or really any business really, that isn’t becoming increasingly more sophisticated in terms of data analytics and modelling, and that trend will continue across all sector lines,” Mirabella says.

Feature image by iStock.com/ANGHI