The impact of COVID-19 on motor insurance
29 April 2020
04 December 2020
The wide implications of how the coronavirus is affecting the motor industry, from the manufacturer to the driver.
COVID-19 is an unprecedented event for the insurance sector. With a lengthy lockdown in place, many drivers are no longer on the road using their vehicles. The knock-on effect of this is that there has been a significant reduction in the number of motor insurance claims.
While this may be good news for insurers, what does this mean for customers who have bought insurance they can’t use? And what are the wider implications for the motor industry as a whole?
The ABI (Association of British Insurers) have already announced that its motor insurance members are offering enhanced help and support to all their customers who may be affected by the impact of COVID-19. In support of this the Department for Transport have announced an automatic extension of six months for MOT certificates due from 30 March onwards.
Commenting on the announcement, an ABI spokesperson said, "In this unprecedented situation, insurers will not penalise you if you can't get an MOT. Safety is paramount so check your brakes, tyres and lights before driving”.
Due to changing habits there are now quieter roads. But how long will this last for? If the lockdown lasts for more than six months, how will consumer benefits reflect this? If a driver is not using their vehicle then this questions the relevance of a ‘no claims bonus’. Could this be addressed through telematics by rewarding drivers for not using their vehicle at all? Or would payment holidays be more appropriate for those not using their vehicles?
At a first glance, one possible solution could be for insurers to refund insurance premiums. However, vehicle owners should remember that insurance covers more than collisions on the road. If an unused vehicle is stolen or damaged, their motor insurance would also help with replacement and repair costs. The downside in a reduction of premiums means that this could also mean a reduction in cover.
Change in behaviours
Those that can work remotely may eventually choose to make more flexible arrangements on an ongoing basis. If people are using their vehicles less often, car share or use public transport, this will ultimately have an impact on what customers want from their insurance products.
With the use of telematics, could ‘pay as you go’ insurance become the new norm for drivers? Usage based policies could provide temporary cover that insures by the mile. Extending cover to borrowed vehicles for work purposes is another potential option.
The lack of vehicles in use also means that they might not be regularly checked. While there have been market agreements to relax requirements of maintaining vehicles, any disuse could cause issues when the vehicles are eventually back on the roads.
Once the lockdown is eased it is likely that there will be a surge in vehicle use as people will want to visit friends and family or return to work, which presents another set of concerns. Not only will the increase of vehicles on roads make collisions more likely, but accidents may also occur because drivers are out of practice.
The manufacturing and business model of the auto industry has understandably slowed down. With a reduction in demand, the closure of auto-shops, garage repairs and services, this will have a knock-on effect on revenue as well as innovation. The sales of electric vehicles have also seen a decrease, which will also inevitably lead to a pause or delay in new vehicle types.
If people choose to use their cars less often once lockdown restrictions are lifted, trade will also be slow to pick up again as vehicle owners might not be transporting themselves the same way as before the pandemic.
Manufacturers and retailers will also have large unoccupied buildings containing high-value materials that might not be covered by their existing insurance due to the change in circumstances. Materials that may expire or have to be disposed of may also cause a financial loss that would not have previously been factored in.
While there may not be many motor insurance claims at present, a surge is likely once the lockdown is lifted. This could either be due to an increase in accidents once cars are back on the road, or because customers were previously unable to reach their lawyers about incidents before the lockdown.
There may also be an uptake of CMC (claims management company) activity, looking into how motor insurance customers have been treated during the lockdown period.
The insurance sector is still working with trade bodies and the government to try and address these concerns. Each day brings a new set of problems with customers unsure if their insurance products are still protecting them. Therefore it is important to provide updates and transparency where possible on the steps being made to address how insurance is adapting to these sudden changes in circumstances.
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.