Major Auto Insurers Now Refunding Premiums Due To “Unprecedented” Driving Slump

In an unprecedented move, an “unprecedented driving slump” has major auto insurers like Allstate and American Family Insurance refunding partial premiums to their customers. 

Allstate is expected to refund more than $600 million, according to Bloomberg. Personal auto customers would be getting back about 15% of their monthly premiums in April and May. American Family said it is going to be refunding about $200 million to its customers via a one time $50 payment, per vehicle.

Allstate Chief Executive Officer Tom Wilson said: “Given an unprecedented decline in driving, customers will receive a shelter-in-place payback of more than $600 million over the next two months. This is fair because less driving means fewer accidents.”

Driving is down by about 35% to 50% in most states as a result of coronavirus lockdowns. 

Wilson continued: “We started with one week of data and we sat down and said, ‘OK, what do we do about this?’ It’s one week of data. We don’t normally price on one week of data. In about a week and half, we pulled this off. There was not one debate in our company about whether we should do this or not.”

Allstate warned that its pre-tax Q1 underwriting income would drop by about $210 million due to the payback, which is going to affect about 18 million policies. The remainder of the impact will be felt in Q2.

Matthew Palazola, senior industry analyst for Bloomberg estimated: “Allstate’s Shelter-in-Place Payback program, announced in a filing April 6, will reduce 1Q consensus EPS by about 16% and will also affect 2Q; still, fairly low 1Q catastrophe costs and a decrease in auto traffic nationwide may have offsetting effects.”

The company also said its offering free identity protection and payment relief to its customers.

David Motemaden, an analyst at Evercore ISI, commented: “We think it is positive that Allstate took a proactive step to refund customers. In addition to a good marketing opportunity, it likely also improves Allstate’s relationship with state regulators.”

Meanwhile Allstate CEO Wilson has argued against growing pressure from lawmakers that insurance companies should be covering business interruption costs tied to the pandemic: “The way to have dealt with this was to have built a resilient set of financial protections around a pandemic before we got into it as opposed to trying to do it in the rear-view mirror. I don’t believe that we should expand contracts and make people pay for stuff, even if it’s only temporarily.”

Allstate competitor Progressive is also looking at whether or not refunding policies is a possibility for its customers.