COVID-19’s Impact on Personal Auto and Workers’ Comp

The property and casualty (P&C) insurance industry entered the COVID-19 pandemic from a position of strength, and it remains strong and resilient. However, the rapid economic slowdown will temper P&C growth, especially in industries that are more sensitive to the national economy.

The Adaptable Insurer

Insurers have adapted remarkably well to the pandemic. They rapidly implemented work-from-home (WFH) models and pursued business as usual, quoting new policies, processing renewals, handling claims, and collaborating with brokers/agents and other business partners.

At the same time, the pandemic exposed a few cracks in their operating models, and the current virtual work environment highlights the need for insurance carriers and agents to increase adoption of emerging technologies to enable a fully digital enterprise. One silver lining about COVID-19 is that it’s a great digital transformer: The race to automate and digitize traditional manual processes at scale, from customer service to underwriting and claims handling, is escalating rapidly.

Will Usage-Based Insurance Go Mainstream?

COVID-19 and the shelter-in-place, social distancing mandates in most parts of the country means people are driving much less, leading to a drastic reduction in miles driven. According to Arity, a mobility data and analytics company founded by Allstate, the total number of miles driven was down 50% nationwide from mid-March through the end of April 2020. Fewer miles driven can translate to lower accident frequency, leading more than 20 auto insurance carriers to offer refunds/discounts on premiums.

While these actions have generated some goodwill for auto insurers, policyholders have questioned the adequacy of these credits, as miles driven are down 50% on average. According to a recent survey by J.D. Power, just 57% of customers are even aware of their insurance company’s refund efforts, and once they become aware, they are 1.8 times more likely to shop for a different auto insurer, 1.3 times more likely to switch, and almost 2.0 times more likely to cancel. Additionally, many customers plan to reduce coverage and increase deductibles.

Several experts believe that COVID-19 will finally drive usage-based (UBI) or pay-as-you-drive (PAYD) auto insurance into the mainstream as customers perceive telematics programs as a more accurate and fairer way to determine premiums. When emerging from lockdown, individuals may start driving less, as WFH increases and the social distancing mindset lingers. This is an opportune time for carriers to provide agents with tools and marketing materials to educate their customers about UBI/PAYD options.

Call Centers, Chatbots, and AI

With in-person interactions not feasible with social distancing and long hold lines with call centers, the pandemic has caused many insurers to turn to chatbots and mobile claims assistants. Over 80% of auto claims are high frequency and low severity, and as such lend themselves to a touchless or low-touch claims handling and payment process.

Tools such as desk adjusting, paired with video collaboration and AI-based claims triage, are reducing cycle times from hours to seconds in many cases. Policyholders are also making use of self-service tools to speed up the claims process. As carriers think about their customers’ wants and needs in terms of products and services, are they prepared to serve policyholders in a way that puts technology more at the forefront than they have in the past?

Insurers can lean in by providing agents with virtual capabilities and driving superior customer engagement through digital submissions, claims, and payments. InsurTech firms such as Snapsheet and Tractable – pioneers of virtual claims – are poised to benefit from the current environment.

What Is Workers’ Compensation Insurance When Few Are Working?

The workers’ compensation (WC) industry is dealing with significant disruption because of COVID-19. WC insurance premiums are poised to fall drastically due to the collapse in payroll exposure, with 30 million-plus initial unemployment claims (as of this writing) and many more likely to come. Wage growth, which had been making gains, will also likely slow. Carriers may have to charge higher rates to make up for the significant decline in both exposure and investment income.

While we might see a spike in severity and frequency in certain occupations (e.g., first responders, lab technicians, hospitals, nursing homes, meat plant workers), we can expect an overall decrease in claims frequency given the reduced economic activity and the WFH environment.

With so many businesses closed or functioning at reduced capacity, there are fewer opportunities for workplace injuries to occur. A decrease in claims may translate to less revenue for vendors with fee-for-service and per-claim business models, such as medical management providers and third-party administrators. It’s too early to predict the impact on WC claims severity, given that many states are still under a shelter-in-place order, but experts anticipate a rise in severity due to delays in treatment, causing duration to last longer, and elective surgeries being pushed out.

Several states are or are thinking about expanding access to WC coverage for COVID-19 beyond front-line workers to include all workers labeled “essential.” For example, Kentucky expanded WC presumption to daycare, grocery store, and postal workers. Illinois expanded that definition to many occupations ranging from charitable service organizations, laundry services, and gas stations to hotels/motels and funeral services. There are very few case law precedents regarding what constitutes a compensable claim when working from home. What claims arise from these situations and how courts interpret them will be interesting to observe.

With many injured workers unable to see their doctor or physical therapist, workers’ comp insurers, employers, and patients are increasingly interested in telemedicine and tele rehab. This interest will likely endure beyond COVID-19′s lifespan.

Adjusters in the workers’ comp industry are trained to handle injury claims vs. illness claims. It will be interesting to see how they handle these new types of claims. Complex coverage issues may need to be resolved through litigation, which could have a significant impact on claim severity. Using advanced data analytics to inform claims decisions can lead to better claims outcomes, from appropriate upfront claims triage to identifying claim volatility, targeting claims for settlement, and detecting fraud. With COVID-19 claims likely becoming more prevalent, the entire workers’ comp ecosystem will have to adapt and continue to embrace modernization and business model flexibility far into the future.

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About Kevin Frawley

Kevin B. Frawley currently serves as the Managing Principal for Saguaro Associates, LLC, a strategic and management consulting firm for insurance and securities. Prior to this role, he held the role of CEO, Property & Casualty for the Americas and Exec Vice President, Legal Settlement Administration for Crawford & Company, one of the world’s largest independent providers of claims management solutions to the risk management and insurance industry as well as self-insured entities, with an expansive global network serving clients in more than 70 countries.

About Astrid Malval-Beharry

Astrid Malval-Beharry is the founder and principal of StratMaven LLC, a strategic advisory firm offering consulting and advisory services in three sectors: Insurance, Healthcare and Technology for insurance carriers and healthcare entities. The firm helps clients achieve superior performance through the development and implementation of growth strategies. Prior to founding her firm, Astrid served in multiple senior executive roles including LexisNexis Risk Solutions, a $2B unit of RELX Group.

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