It's worth mentioning some states have caps on how much insurance can make, in other words if they're not absorbing a base amount of risk, they have to give the money back because people are paying too much to insure against something where the risk is low. I've gotten checks back from auto insurance before where they made too much money that year due to lack of payouts.
This sounds like a great system on face value, but it also adds a perverse incentive for insurers to drive up repair costs (and hence their premiums) in order to increase their own revenue. I've heard this effect put forward as one reason that the U.S. medical system's prices are so overinflated.
Unlike healthcare, if I go to a body shop or mechanic, they tell me how much it's going to cost me and even write it down on the work order, before they start working.
Because of that, I've never gone to pick up a car from, say, a brake job and been presented with a 4-5 digit unexpected bill because "Our shop assistant wasn't available so we had to pull in the Bugatti specialist next door to help bleed the brakes".
Many years ago, my wife crashed our truck. The insurance guy took a look, estimated that it wasn’t a total loss, and directed the shop to fix it.
Unfortunately, he missed several significant signs of expensive damage. The engine had to be replaced, the frame required more work, etc. etc. At the end of the process, GEICO bought us a very expensive new old truck.
> Unlike healthcare, if I go to a body shop or mechanic, they tell me how much it's going to cost me and even write it down on the work order, before they start working.
It might be hard to believe, but that's largely how healthcare pricing works in Singapore. Especially for routine treatments and surgeries.
Unlike healthcare, there is a functional, competitive market for insurance and repair. Most states have dozens of insurers and hundreds or thousands of repair shops.
Healthcare is different as it is a series of cartels on multiple layers, and the risk-based aspect of insurance is blunted by the amount of chronic stuff covered. Your auto insurer doesn't cover broken brakes, but your health insurance covers blood pressure pills.
There is a semblance of price discovery in auto repair market, which is completely missing in healthcare market. In many (most?) states, it is completely legal for healthcare provider to answer pricing questions with "we don't know".
This is partially a result of the way that health insurers in the US (both public and private) pay for procedures.
A 15 minute consult with a GP is paid differently depending on whether the outcome of that consult is that you're diagnosed with e.g., strep throat vs. cancer.
That and turning health insurance into, well, insurance.
You don't need insurance for small things you can pay out of pocket. (Or entirely predictable costs like a pregnancy without complications or getting glasses every year.)
You need insurance for catastrophic events that would wreck your finances.
Totally. I see it in my own industry (minesite automation) - the client wants some parts, we order the parts, add our markup, and bill the client. The more expensive the parts, the more money in my pocket. (I still do the right thing and try to get them the best price, but I can see the temptation.)
Fortunately (afaik) there are no in/out of network auto mechanics, and the mechanics don't negotiate rates with the companies (again afaik). The barriers to setting up an auto repair shop are also far lower than setting up a hospital.
There are many “in-network” auto body shops, which get referrals from insurance companies in exchange for negotiated rates. The industry’s term for this is Direct Repair Program (DRP).
TIL. But there's a vibrant and competitive market for auto repairs in general. In-network shops can't be more expensive than out-of-network shops. There's no "certificate of need" system that can block the starting of new auto shops.[1]
Auto repair costs are capped at the value of the vehicle. There isn't a stream of indigent customers coming in for emergency repair that have to be subsidized by everyone else. There's far more visibility into risks - insurers have access to your driving history and can refuse to offer coverage based on it. You can volunteer even more information to lower your rates - from credit history, marital status, educational level, all the way up to installing a device on your car's OBD port to monitor your driving habits.
In short, auto insurance and repair really isn't anything like healthcare.
Sure, but they can say, this is the shop we will pay ourselves, or you can go somewhere else and we'll cut you a check. If you need the repairs done faster than they cut checks and don't have cash on hand, it's a strong incentive.
Which is why people should have savings and learn some life skills like basic auto repair. Body work and paint I can't do myself, but that's mostly cosmetic (look at the number of beat shitboxes rolling around in the US). But you should be able to get a car into running order or acquire a rental vehicle while you wait for the check. Rental vehicles are usually at preferred rates when associated to an insurer and depending on the policy are covered.
Also there is less concern with an auto “death panel” where cost of repair exceeds replacement value. I can’t imagine Aetna offering you $50k to just die already...
Someone bumped my rear last year and their insurance company had me take the car to a body shop.. to be re-painted. I don't know what final cost was but I heard an estimate that put it at roughly the value of a new bumper. Of course buying a new bumper and installing it would be a much quicker & simpler job than sanding and painting an old bumper (this is Honda btw, replacement bumpers come pre-painted), but it wouldn't allow the body shop to make as much profit.
Even though the new bumper is factory painted it doesn't necessarily mean that the new bumper and old colour will match 1:1 -> they might have to paint the new bumper regardless which is why it might be preferable to just fix the existing one.
In fact all the manufacturers I've ever worked with send you an unpainted bumper when you order a new one(or any body panel really) and it has to be painted before being fitted, specifically for the reason you mentioned. A good body shop will match the paint that's actually on your vehicle.
In my experience honda parts do match 1:1 and I don't think they'd waste the effort on maintaining a stock of pre-painted parts if the receiving body shop was going to have to paint it anyway.
If the final price of repairing the bumper was the same (or nearly same) as buying and installing a new bumper, why do you say the former has a higher profit margin? Surely it's more profitable to spend fewer hours and earn the same revenue - as they would do by installing a new bumper?
It’s a matter of parts vs labor cost. For the shop, the labor cost is already sunk: they’re paying their mechanics to be present whether or not they’re actively working on a job. The replacement bumper is an expensive part that requires little labor, and so doesn’t offset the shop’s previous investment in labor contracts as much as the repair work would.
Also, mechanics in the US usually charge book time instead of actual work time to customers: you pay for the hours that the manual says the job should take regardless of how fast or slow the mechanic actually is. So, more efficient mechanics prefer labor-heavy jobs because working faster than average effectively brings in a bonus.
>: they’re paying their mechanics to be present whether or not they’re actively working on a job.
Usually this is not the case. Google "flat rate pay", it is the norm for automotive shops. As you get into more specialty stuff (commercial truck and heavy equipment repair, pure body and paint work) hourly pay is more common but still not the norm.
>Also, mechanics in the US usually charge book time instead of actual work time to customers: you pay for the hours that the manual says the job should take regardless of how fast or slow the mechanic actually is. So, more efficient mechanics prefer labor-heavy jobs because working faster than average effectively brings in a bonus.
This is correct but what you're missing is that because of how flat rate pay works the shop rate is XX and the tech gets YY of that so the incentive for both the shop and the tech is to work as fast as possible without doing so bad a job that the customer comes back telling you to fix it.
It's also worth pointing out that labor and parts pricing schemes is one of the back end things shops tweak in order to differentiate themselves and/or obtain competitive advantage so that adds a whole 'nother layer of incentives on top of the incentives provided by flat rate pay.
Parts markups schemes (if any) vary wildly from shop to shop. Some shops have a couple suppliers and order everything for them. Some shops stack up two weeks of work and have the service writer spend their afternoon ordering stuff through the same eCommerce channels consumers use. Some shops try not to stack up future work, have accounts with all the local parts stores and get stuff delivered same day. Some shops vary the parts markup by part class (e.g. one markup for body parts and a different markup for brake parts). Some shops charge the customer cost and make their money on labor to incentivize customers to splurge for "while you're in there" type repairs (e.g. rotors to go with pads).
Some shops proudly discount the labor (lower shop rate) and try to make it up on parts.
Labor cost to the shop also varies by tech. The guy who can re spray a bumper is gonna make a higher fraction of the shop labor rate than the guy who can only install a bumper cover.
The service writer can also have their pay tied to incentives to sell parts, or maybe a class of parts, or maybe labor, etc. etc.
Depending on the specifics of the particular shop slapping on pre-painted bumper covers may very well make the same amount of money as a proper re-spray. There's so much variation it's hard to generalize.
For me this means - "labor hours are constrained, so I should spend them wisely". If I wanted to buy more labor hours, I have to hire a new person and pay more money. That means preferring jobs where the markup is on non-labor things i.e. new parts. As long as my job pipeline is full and my employees are at 100% utilization, preferring less labor-intensive jobs will drive greater profits. Because I can complete more jobs overall, leading to more revenue.
Don't get me wrong, I understand that the markup on labor is higher than the markup on parts. But if you're betting on higher profits by selling more labor hours, then you're also constrained by physical space, your ability to hire labor and pay a competitive wage, the risk of a downturn etc. It's almost like software consulting vs software products. Selling products is always going to be more scalable and profitable.
Your reasoning looks right if your employees actually are at 100% utilization. If they’re not, however, the marginal cost to the shop of labor is 0. (1) Thus, it’s better to prefer the option that lets you charge more labor hours when you’re light on jobs.
For most brick-and-mortar shops, it sustainability, not scalability, that dominates. If you’re tooled up assuming the market will stay hot, you’ll struggle when the inevitable downturn comes. On the other hand, if you can stay break even at 50% of normal volume, you’ve got a chance to ride through a recession with your business intact.
The comparison to software breaks down when you’re talking about products, because the shop is a reseller; there’s a pretty hard limit to the amount of retail markup the market will bear before competitors crop up.
(1) As it turns out, this isn’t completely true; see the other reply.
You can buy the consumables for a paint job for a few dozen bucks, and then charge for a day or two of labor. You make 800 eur. Selling labor is how your body shop makes money.
Or you can buy a new bumper for 600 eur, charge a thin margin on it, and then add maybe one hour of labor. Most of what you charge goes to Honda, you make maybe 150 eur, and then hope the next job comes soon so that your tools and people don't sit idle for too long.
You also have to pay for the working space. The reason why paint jobs cost so much has more to do with the lengthy setup than the actual labor or consumables. You need to maintain a specific temperature. You must detach the painted parts and tape them. There are minimum volumes of paint you have to use before you can mix them. This is why painting one part is so expensive. Painting three bumpers at once is much cheaper but nobody wrecks 3 bumpers at once.
Yeah, selling labor makes sense if you're short on jobs. If your order pipeline is full it makes more sense to sell marked-up parts and use less labor.
Their preferred shops are to be completely disregarded. You should not only disregard them, but also make a point of not using them. If you use their “preferred” shop, you are not the customer, the insurance company is. There’s no benefit to you whatsoever, and they still have to pay regardless.
This isn't the only thing driving that effect. In any situation, a price tag can be higher when those receiving the service don't feel it in the wallet immediately, whether for reasons of insurance or even loans (homes, tuition, etc.) and those facilitating (insurers, lenders) would surely be incentivised to do whatever they can to make using their services the best way to get a fair price. Look at rental car rates where a retail walk-up customer pays double or triple what insurance pays -- for the same exact car.
This is also true. "Your health insurance benefits for optical have reset, would you like to come in for new glasses?" "Well sure, my current ones are fine if the new pair is gonna be free..."
Especially since auto insurance is something you can get online (or via the phone, if you are old fashioned) anywhere in the country from anyone else in the country.
Alas lots of regulations that are supposedly in favour of the customer don't really do very much despite good intentions, when there's a lack of competition.
For example, British grocery shopping was priding itself on being very competitive (it wasn't), got constantly dinged by their regulator for stupid stuff; but only really woke up once Aldi and Lidl showed up on the scene and gave them a run for their money.
Similar with British retail banking. It used to be really awful. For example, they charged you extra fees if you were poor enough that occasionally you didn't have enough money for your standing orders to succeed. (Instead of just failing the standing order, they failed them and charged you.)
Their regulator told them off and fined them repeatedly. But without changing anything much.
The recent arrival of new challenger banks like Monzo seems to be making a difference, though.
It's normally not a fixed amount. It's generally a percentage above costs. If all costs increase, they increase their revenue. They get the same percentage of a bigger pie.
Otherwise doesn't a refund go against the whole idea of insurance? The idea is you pay a premium not knowing if you'll need it or not, and they take on all the risk if you do need it.
If you ask for your premium back because you didn't need it you're missing the point of insurance.
> The idea is you pay a premium not knowing if you'll need it or not, and they take on all the risk if you do need it.
It's not getting your premium back because you didn't need it. You'd still get back this portion of the premium even if you get into a car accident on your way to the grocery store, because it's not about you, it's about everybody else. The average risk went down, so the average premium went down.
This certainly happens in the other direction too, they'll raise your premium for the next period if the average risk goes up. But their marketing departments aren't stupid. Sending everybody a check right now makes their "largess" more conspicuous to customers than sending everybody a smaller bill next quarter. It also keeps you from canceling your policy with them and switching to someone else currently offering a lower rate because of the currently lower risk.
I can’t even imagine how annoying a system like that would be to implement. So you credit everyone’s account but then you have mark this money as special to ensure that it eventually gets paid out to every account in either credit or cash. Then you have to monitor the accounts for policy cancellations and issue checks.
The credit card companies don’t seem to have any trouble applying my cash back rewards to my account balance without sending me a check. But if I do cancel my account and end up with a positive balance, they do send a check. Seems like basic accounting to me, not some sort of wizardry like you suggest. Mailing checks is probably more expensive if anything.
If it was just PR, companies will spend $10 on ads talking about it for every $1 they give away. Give credit to the regulation when it works - next time someone says regulation is bad.. remember this.
For a mutual insurance company, what difference does the regulation make? Whether the customers get the money as a refund check or the mutual insurance dividend or lower premiums next period, they still get it.
Even for a for-profit insurer, insurance is a fairly competitive market. They might have to give the customers the money anyway to keep them from defecting to the mutual insurance companies. Even if they didn't, that would make being in the insurance market more profitable, which would attract new competitors, which would drive down premiums/margins until the risk-adjusted return of becoming an insurance carrier was back where it was. In other words, in a competitive market the customer gets the money one way or another.
This is a common occurrence with regulation. The regulation requires some good thing that would have happened regardless, the good thing happens and the proponents credit the regulation even though it was inevitable. Meanwhile you have a compliance cost, because it takes resources to keep track of the regulation and make sure you're complying with it even if it was the exact thing you were going to do anyway. That makes everyone poorer -- the compliance cost is the opposite of the windfall, so it makes it less attractive to compete in the insurance market and allows companies to pass on the compliance costs as higher premiums.
1. If there is extra profit one year, these companies will willingly reduce premiums instead of giving bonuses, stock buy backs, or dividends to investors. I don’t know if you have observed the stock market recently
2. “Compliance cost” - these things are not done via paper and fax machines. Regulation simply asks one to keep track of, say in the case of medical companies, administration cost vs servicing cost etc - things you would have had to do anyways in your public-good-seeking scenario above
> 1. If there is extra profit one year, these companies will willingly reduce premiums instead of giving bonuses, stock buy backs, or dividends to investors. I don’t know if you have observed the stock market recently
It's the thing competitive markets require of them. If costs go down, one company is going to notice how much more profit they can make by lowering prices and using the lower prices to triple their market share. The others then have to do the same thing or they continue to lose market share.
The buybacks are something else entirely -- they're a result of low long-term interest rates. Companies have at least two ways of raising capital. They can sell stock and they can borrow money. When interest rates are low it makes more sense to raise money through borrowing than selling shares. Buybacks are the reverse of selling shares, so when interest rates are reduced there is a rebalancing which involves companies borrowing more money and buying back shares because it's cheaper to use borrowed capital than invested capital when interest rates are low.
> 2. “Compliance cost” - these things are not done via paper and fax machines. Regulation simply asks one to keep track of, say in the case of medical companies, administration cost vs servicing cost etc - things you would have had to do anyways in your public-good-seeking scenario above
Have you seen the regulations in some of these industries? There is nothing simple about it. It requires you to have lawyers in addition to accountants. And the lawyers are pathologically risk-averse but have plenary control over compliance policy because no one wants to end up in court, so the rules in practice are characteristically much more rigid than what the legislature intended.
Many of the costs are also fixed rather than proportional to customer volume, which disproportionately impacts smaller companies and results in a disproportionately large negative impact on competition.
Car insurance is more than just insurance, though. For one thing, it's mandatory. A person with zero assets buying insurance is also missing the point of liability insurance, but they have to buy it anyway.
Do you think that the price an insurance company sets for risk in advance is by definition correct?
I mean, something that comes to mind in terms of current events, people selling puts (stock options) just before the stuff hit the fan with COVID-19, were selling insurance. It seems really difficult in my mind to argue that that insurance was priced correctly just before the panic started.
> Do you think that the price an insurance company sets for risk in advance is by definition correct?
The question doesn't make sense. The price is neither correct nor incorrect, it is just the price. It may or may not lead to financial success based on a whole host of factors but that isn't the same thing as "correct" or "incorrect".
There is more nuance. It’s actually because an insurance company is required to pay a certain percentage of premiums out for claims. In health insurance, there is the “80/20” rule where at least 80% of premiums are required to be paid as claims. Auto/property has similar rules set by relevant state insurance commissions.
If claim volume drops, they means they don’t get to necessarily keep the extra “profit.” I am not familiar with the rules around auto (I used to be a disaster home/property claims adjuster,) but I suspect auto rules are similar. It isn’t about risk being reduced, but more about claims payouts being projected less than the premium rates have accounted for. Insurance companies actually want lower rates — it means they sell more insurance which further deepens the risk pool.
The other states have caps on a whole range of insurance. There's also some states that have cap on insurance premiums that is only effective in case of collapse, a "loss," or a "cost," because they're insurance companies who cannot keep things in place that can be taken care of. That's also a good policy way for some people to buy insurance in the individual market, but that can still be expensive.
The idea that you can keep things in place to save money, or in this case an extended-run plan as well, is a lie. It's not.
I would say that what we would do would fall on the taxpayers side by the way — not even if they had the flexibility to keep things in place but to continue servicing the insurance, keeping insurance in place until the company would be bankrupt in the event of a collapse.
Anecdote: The few times I've driven in the last couple weeks I've noticed at least one person driving like they forgot how to drive. I don't know if everyone is just amazed that the streets are empty, or if people really have forgotten how to drive or what, but it's very eerie.
I noticed something similar. My theory is that the set of people who are unwilling to heed stay-at-home orders has a significant overlap with the set of people who are inattentive or reckless drivers. As a result, there is a disproportionate number of bad drivers still on the roads.
When panic buying set in here in the UK a few weeks ago I was out driving with my wife and commented that people seemed to be driving very aggressively and impatiently. A few minutes later after making that comment, and saying I felt the same impulse, we passed a crash scene. Also a few days ago I drove past another crash scene with a car all smashed up at the front by the side of the road. I suspect people feel stressed and distracted, and particularly during panic buying a ‘survival of the fittest’ mentality set in a bit.
All anecdotal though, I’m sure the insurance numbers don’t lie, there must be many factors at play. I live in a dense urban area, so maybe there are locale specific effects.
Well at least Polish police has released numbers recently saying that in the last 2 weeks the number of accidents fell down, but the number of killed on the roads has stayed the same. Fewer people drive on the roads, but those that do drive more aggressively.
Also anecdotal: I have to admit I went down a one way road next to my house the other day. I have driven past it thousands of times. I needed to take the following turn. I got to the next intersection where the stop signs were facing the opposite way and was simply confused. Every time since that I’ve been hyper aware (hopefully) but it really only takes one mistake in a car to have a fatal accident and I’m very lucky no one was around when it happened.
In my observation the standard deviation from mean and median speed has definitely increased but the number of discourteous interactions between drivers has sharply decreased. People are driving 60 in a 40 and 40 in a 60, taking exits from the left lane and passing people in the right lane. These would be inappropriate moves if the roads had the usual congestion on them but with the reduction in volume nobody seems to be inconveniencing anybody else (or causing close calls) so I guess it's fine.
Anecdote: Drove the other day around my small town and never exceeded the speed limit and was actually 5-10 MPH below whereas normally I'm 5-10 over. It was Sunday, I wasn't in a rush but the lack of other vehicles certainly changed my driving style.
I live in an area with aggressive drivers in the best of times. these last few weeks, it's been more like mad max everytime I get on the freeway. plenty of room to go as fast as you want in the left lane, but people are weaving across all three lanes at 95+ in their old civics.
I drove through Los Angeles at rush hour last week without slowing below 45 miles per hour at any point. It was like driving inside a pinball game where multiball had just been triggered.
The usual weavers were rocketing across all lanes, suddenly unimpeded by the usual dense line of cars. But you still had the occasional slowpoke traveling waaaay below the prevailing speed of traffic.
It was freaky to watch as the clock ticked over to 5:00 while rolling along the I-5 downtown at full speed. But it was also necessary to stay on alert because there were so many terrible drivers out and about.
I noticed a lot of people in BC are teaching their kids to drive as the roads are pretty empty. (You can tell because learners have to display a sign on the vehicle).
I went to work once on December 27th. I hadn't realized it was a holiday. Anyways the streets were pretty empty, & so of course the few cars there were were cruising along faster
Empty roads encourage speeding. Similar to how traffic can be slowed down by making narrower roads
Gig workers trying to switch apps and check for jobs while driving to drop off a gig will look like this sometimes. I wish they’d not do it, even if I’m grateful to them for doing their gigs.
This makes me worried for what happens when folks are getting back on the streets. Everybody will have forgotten how to drive properly, and have to get back into the habits.
State Farm is in theory a mutual company, i.e. owned by its policy holders. Years ago (like more than 20) I used to get the occasional profit distribution check, but that stopped happening in the 2000s. Apparently they discovered the concept of Hollywood accounting.
IIRC, the last time I checked (sometime back last year), State Farm actually had spent the last few years running at an underwriting loss— they were taking in less in premiums than they were distributing in claims. They were mostly remaining solvent (and paying admin costs) through investment income.
Which is probably about how they should operate. As a mutual company, if they’re routinely having to return profits to policyholders, their premiums are too high.
>> State Farm actually had spent the last few years running at an underwriting loss
This is common amongst mutual and non-mutual companies. The spreads are pretty thin and a few ticks of variance in one direction can drive down profits massively. It's not a great business to be in.
I'm not affiliated with State Farm other than being a paying customer; with that said, my parents, who are also customers, contacted their agent today (also my agent), and the agent told them there was a meeting today/this week between agents or the entirety of the SF org (I don't know all the details), and basically a decision is supposed to be made by Friday about paying out dividends to constituents.
Again, not affiliated other than being a customer so that's all he said, she said. But if true, then that would be a nice way to get some money back into insured's hands.
Amica pays an annual dividend whose percentage varies based on the number and types of policies you hold with them. That said, they weren't mentioned in the article and so far I haven't seen anything related to a rate reduction.
Amica is a mutual insurance company, but the dividend is paid only if you're a mutual policyholder, as they now also offer non-mutual policies at lower rates, without the dividend. However, I believe the dividend is based on the company's claim payouts over the preceding 12 months, rather than number and types of policies you personally hold with them -- that can provide a discount on your policy rates, but not the dividend rate.
So I would expect a larger-than-usual dividend from their auto insurance this year, assuming their paid claims are less than forecasted.
You are correct that the dividend amount also depends on Amica's claim payouts for the preceding 12 months, however I checked my statement from last year's payout and it lists a dividend percentage for each type of policy they sell, ranging from NONE (Automobile Liability and Physical Damage, Homeowners (Workers Comp)) to 20% (Boat/Yacht, Personal Umbrella Liability), so this seems to be a separate factor from their claim payouts for the preceding 12 months and also separate from the multi-policy premium discounts they offer. I will also add that these rates can also vary by state, as the statement specifically says "our latest rates in Texas". Based on what I'm seeing I wouldn't expect an increase in the annual dividend due to fewer car accidents, but a premium reduction might be possible.
Ive received a check from State Farm within the last 5 years or so. Don't recall precisely when, but that it was before I got married 3 years ago.
It would be nice to get an adjustment while self isolating. Farthest Ive driven my car in the last 2.5 weeks was to back up and pull into the adjacent spot next to my wife to jump her car so she could run the 1 mile to the pharmacy.
Interesting tidbit at the at end of the article I thought others may enjoy:
> Allstate reports that while accidents are less frequent, the crashes that do occur seem to be more severe. The likely culprit? Speed: Drivers can go faster than usual on pandemic-emptied streets.
Drivers who drive rudely are being way more rude around here now that the roads are empty. Like, they used to hit 35mph because there was traffic obstacles in their way, and now they’re hitting 45mph (in our 25).
They would have to lower rates otherwise by law, and presumably take a loss next year. If they lower rates too much, they will get way too many short-term customers. If they don’t lower enough, they will lose many long-term customers. This is a half-measure.
This is the kind of thing that will separate companies in the future. If you're a good corporate citizen consumers will notice in ways current generations don't. We don't notice in the numbers necessary for companies to change their behavior.
My wife and I were already considering dropping my car from the two car policy we have when it renews next month. I personally think we'll be in a "shelter in place" mode through most of June at the earliest and with us both working remote and daycares being shut down here in my part of TX the need to cover two cars no longer exists. If I need to re-add the car to the policy in July or August at least I'll have saved maybe a few hundred bucks, but if our insurer joins this trend the hassle of dropping might not be worth it.
But...if you take it off the policy, there's still risk of having it stolen or it burning down, that then obviously isn't covered.
And...few hundred bucks from June to August?? How expensive are your policies? I'm paying £400(~$500) per year for a fully comprehensive policy on a brand new Volvo XC60, dropping the policy for a month or two would save me so little money it's almost not worth the hassle.
But...if you take it off the policy, there's still risk of having it stolen or it burning down, that then obviously isn't covered.
You do have a point, I'd be pretty pissed if it was stolen. It's sitting in my driveway and not in a garage so chances of spontaneous combustion are pretty low :)
Allstate is known for being an ethical and fair company. I work for their subsidiary and this is normal behavior for them. I am proud they are doing this.
Insurance companies are coming out of the pandemic relatively unscathed, because the pandemic isn't a typically covered event for business interruption?
P&C actuary here. Can't speak for life or health insurance.
The first part of this statement is definitely not true ("Insurance companies are coming out of the pandemic relatively unscathed"), but the second part ("pandemic isn't a typically covered event for business interruption") is.
When it comes to underwriting margins (i.e. premium less losses less expenses) then the impact of the pandemic is very dependent on the line of business:
* Auto is actually benefiting greatly, for the obvious reason that there is an unprecedented drop in the number of people on the roads. On the other hand personal auto, as a legally mandated cover, is highly regulated. I imagine a lot of these profits will be given back to consumers, as we see here. Any combination of the company being incorporated as a mutual, a publicly traded company not wanting to lose face in comparison to a mutual, or regulators forcing everyone's hands.
* Business Interruption is offered alongside property insurance. The general idea is that you can recoup lost income while you rebuild after a tornado knocked down your store. It was never intended to sustain the shutdown of the entire world economy. Insurers recognized this risk after the SARS epidemic, and in response the Insurance Services Office (ISO) which provides the industry with standard policy forms for typical exposures explicitly added exclusions for virus and bacteria into the form. It is unclear if it would be covered regardless, as the usual requirement for BI payouts is "physical damage from a covered peril." Frankly, if it wasn't excluded, there would be widespread fears of insolvency throughout the sector right now.
But there are plenty of other exposed lines:
* Contingencies policies, which usually means some sort of event cancellation, is going to get rocked. Some have pandemic exclusions but usually the larger ones don't. Munich Re and Swiss Re are on the Tokyo Olympics tower for a combined $800 million, and the total value insured for that tower is definitely in the billions. There are plenty of other ones that are not making headlines that will make this a huge headache.
* Medical malpractice insurance: more patients and more death means more lawsuits. Whether or not the lawsuit is justified does not remove an insurer's duty to defend.
* Directors and Officers policies will also take a hit. Shareholders file lawsuits whenever share prices go down (duty to defend again), and companies that royally screwed up (e.g. cruise ships) are likely to actually pay out.
* Workers' Compensation premium, which is calculated retrospectively based on average payroll over the period of the policy, is going to drop significantly. That is an impact to the "top line" (i.e. premium) but still a large hit to investment float. Also, after 2008 we saw an increase in claims as people were using WC to recoup income rather than reenter the job market. There will also be claims about getting COVID on the job. Hard to say how many of those will be successful (hard to prove), but I think it is safe to say that it will pay out for a lot of medical workers.
Probably some others but you get the point. This is far reaching. And I haven't really touched investment income. For a lot of lines of business there is a focus on "top line" growth rather than "bottom line" as it is assumed that the premium float will provide investment income. P&C insurers have liabilities that typically pay out over a relatively short period of time compared to life insurers (we call this "short tail" versus "long tail"). That means that the majority of investment is in bonds, which haven't had as bad a hit as equities, but still have hurt except in the very safest investment classes. There is a real fear of corporate bond defaults so a lot of holdings have lost value.
Hey jbeam, I’m exploring a working relationship with The Institutes, and am currently trying to understand the industry from as many angles as possible. Would it be ok if I reached out to you and ask you a few questions? Something along the lines of your personal workflow.
I don't like this. It seems to set a precedent that in the opposite situation (I dunno, a haze that pushes up auto-accidents?) then they might take the opposite tack. People pay insurance to (massively simplified) even out payments for unlikely events, and messing around with that -- even in a direction that short-term seems good for consumers -- seems questionable.
But they do this already. In Colorado many insurers raised rates when we had a large hail storm that caused widespread damage. Allstate roughly doubled my premium because of it (or so they said), even though I parked my car in a garage both at home and at work at the time. I found a better rate elsewhere, but I’m sure others just paid it.
So the fact that they’re offering a reduction seems fair, I guess. Although I wonder if they’re really only seeing a 15% reduction in costs.
What's stopping them from increasing premiums today? They quote every 3 - 6 months and can increase premiums across the board if auto-accidents trend upward.
If you are referring to increasing premiums in the middle of a quote cycle, that's not possible due to how the terms of the quote are worded. The insurance industry is regulated.
It begs the question - does lockdown mean coronavirus is a net "positive" on lives lost, as people will be saved not driving, going out, being stressed, even catching Flu etc. I haven't seen anything about this but the question is worth asking.
Also worth saying I fully agree with the lockdowns simply because of exponential growth.
Estimates are 38,000 for 2019 in vehicle related deaths, this does not include all the others who suffered injuries at any scale. However the virus won't reduce this by the number it is likely to take, I am sure someone could work it out
epidemics should be measured against the death rate from all causes across a year. However immediate numbers are much more newsworthy and allow political interest to drive whatever message they want from them.
so if you want to find a silver lining there are always ways to mince numbers. to be honest looking for a silver lining is much more productive than the panic, doom, and gloom, efforts
> to be honest looking for a silver lining is much more productive than the panic, doom, and gloom, efforts
It certainly is not. The "panic, doom, and gloom, efforts" are what drove us to take action in the face of unrelenting baseless optimism that would have single handedly killed millions. Being afraid of something is not the worse thing that can happen! Please stop acting like it is!
Just wanted to update here, as I did send them an e-mail after seeing this post. They are willing to adjust premiums if you give them a few bits of information such as how many miles you now drive per week on quarantine. I've yet to get a response as to how much the premium will be reduced, but it sounded promising.
I'm hoping but I'm guessing they won't. SOme of the insurers are set up as cooperatives and so they pretty much need to do it. Geico is just designed to feed the ad agencies and Warren Buffet's pocket.
The lives saved from reductions in pollution and crashes is at this point larger than the covid19 death toll. We already had a pandemic that got displaced by a new one.
