I would disagree with the policy proposals of these 2 groups about 99% of the time.
But this proposal makes sense, if a little early in the process. If the slow down is a month or less, the logistics of calculating each driver’s reduced miles make this proposal impossible.
But if the slow down is longer, this is a great opportunity for insurance companies to do the right thing and gain enormous good will/positive press that can pay off in the long run. Even if the challenge of gauging each driver’s exact, fair return of premium is impossible. If I were CEO of a large personal automobile insurance writer, I would be seriously thinking about trying to be first out of the gates on this.
CWC- Too early to “get ahead of it”. Loss ratios for the year lag and when these drivers get released back to work, it will be like waving the start flag at the Daytona 500. Hey, that made me think Corona will lose a lot of sponsorships this year and next.
What about a heavy snow or rain storm? If the state wants to declare a “disaster” and mandate a pause on premium payments, then so be it. Doing otherwise is negative precedent.
Agreed. What would be PR and loyalty returns be if Geico, Progrgeessive, Liberty Mutual would come out and say, in your time of need and with your reduced need to drive; daily commute, school and kids related activities, etc. we are going to reduce your 4/1 and 5/1 payment by 25%? Hard to measure the loyalty but I know I will remember how they treat me in my time of need.
Their low mileage discounts apply now to those who drive /drove low miles. Those who drive to work and to other destinations will now drive lesser miles due to the states restricting driving rights.
I already thought out this issue, and someone asked me for a credit estimate a few hours later. The proper way to estimate a credit is open to debate, but it might use data from historic periods of time when, for example, NatCats occurred and local governments shut down roads or curtailed driving privileges for a moderate period of time. There are other proxies available.
Whoa!! Don’t put on the brakes just yet. Insurance companies must obtain rate approval from the Department of Insurance in their respective State, either up or down, based on their actual loss experience and the need to change rates to be both profitable and competitive. If a company can sell auto insurance, or any other product for that matter, for a lower cost than the competition and not risk insolvency, this is how the free enterprise system works. The most efficient and well managed companies attract customers, grow and survive. Let future rates be adjusted accordingly.
“Insurance companies must obtain rate approval from the Department of Insurance in their respective State”
Partially true – some states have “use and file” laws where pre-approval of rate changes by the state aren’t required before the carrier can implement the new rates.
So, what happens when an insurer in such a state files rates and later discovers they cannot be supported by an actuarial analysis? Oops! Insurers in file & use states DO NOT actually file rates and try to justify them later.
Just like insurance rates went up right after 9/11 when all airline traffic stopped and the only way to get around was by car. A lot of people stranded away from home had to drive hundreds if not thousands of miles to get home. Consumer groups always have silly demands and this is yet another. BTW, truckers are all over the place right now helping to restock shelves that are being emptied by hoarders. How does that figure in?
I find this request to be premature for several reasons. First, we have no idea how long this virus slow down is going last. If it is a couple weeks, months, or years. As it takes insurance companies months or years to calculate a drivers rate, a few months or weeks is not really a valid time frame as to how rates should be impacted. Second, as rates are based on investment returns, coupled with insurance expenses, the profits on the auto loss side, may help level off the loss from investments. Simply looking at the miles driven over a short period of time is a sophomoric understanding of the rate making process, and what goes into it.
IF this condition continues, rates will reflect the insurance companies underwriting experience accordingly.
If rates are artificially cut, coupled with investment losses, then frequency increases, rates would then have to be raised more rapidly to reclaim lost revenue.
I don’t recall Mr. Hunter asking policyholders to call their insurers to ask for rate increases during the wildfires or when a hurricane is approaching. The idea of asking for changes within the current rating structure is the right idea.
If the impact of the slow down is long term, loss experience and trending will impact future filings. In recent years, loss ratios increased because the economy improved and drivers were driving more. In the Auto insurance business, there is always a lag. Recent developments in metered driving may reduce this lag.
Hartwig’s comments are ill-informed and demonstrably false. The Alaska department has already acted in response to the obvious change in exposures for many lines of business: https://www.commerce.alaska.gov/web/Portals/11/Pub/INS_B20-10.pdf
It is not a self-equilibrating system. The assumptions forming the basis for current rates no longer apply. Saying that rates will eventually reflect historical changes doesn’t help the folks who are no longer driving, who no longer pose the exposure insurers anticipated, for whom rates are now excessive and for whom immediate relief is both essential and compassionate.
Too early for any actions from insurance carriers other than what we’ve seen so far (billing extensions, some relaxing of policy language for delivery). Certainly carriers will see the impacts of this event with lower frequency in their loss data but until companies have actual results on how long this last, how employees will be paid (this could change over time), amount of billing write-offs, and sales results, it makes no sense to lower rates to a level that is not accurate.
I would disagree with the policy proposals of these 2 groups about 99% of the time.
But this proposal makes sense, if a little early in the process. If the slow down is a month or less, the logistics of calculating each driver’s reduced miles make this proposal impossible.
But if the slow down is longer, this is a great opportunity for insurance companies to do the right thing and gain enormous good will/positive press that can pay off in the long run. Even if the challenge of gauging each driver’s exact, fair return of premium is impossible. If I were CEO of a large personal automobile insurance writer, I would be seriously thinking about trying to be first out of the gates on this.
CWC- Too early to “get ahead of it”. Loss ratios for the year lag and when these drivers get released back to work, it will be like waving the start flag at the Daytona 500. Hey, that made me think Corona will lose a lot of sponsorships this year and next.
What about a heavy snow or rain storm? If the state wants to declare a “disaster” and mandate a pause on premium payments, then so be it. Doing otherwise is negative precedent.
Agreed. What would be PR and loyalty returns be if Geico, Progrgeessive, Liberty Mutual would come out and say, in your time of need and with your reduced need to drive; daily commute, school and kids related activities, etc. we are going to reduce your 4/1 and 5/1 payment by 25%? Hard to measure the loyalty but I know I will remember how they treat me in my time of need.
Safeco/Liberty Mutual already gives low mileage discounts. They were ahead of the virus.
Their low mileage discounts apply now to those who drive /drove low miles. Those who drive to work and to other destinations will now drive lesser miles due to the states restricting driving rights.
I already thought out this issue, and someone asked me for a credit estimate a few hours later. The proper way to estimate a credit is open to debate, but it might use data from historic periods of time when, for example, NatCats occurred and local governments shut down roads or curtailed driving privileges for a moderate period of time. There are other proxies available.
Whoa!! Don’t put on the brakes just yet. Insurance companies must obtain rate approval from the Department of Insurance in their respective State, either up or down, based on their actual loss experience and the need to change rates to be both profitable and competitive. If a company can sell auto insurance, or any other product for that matter, for a lower cost than the competition and not risk insolvency, this is how the free enterprise system works. The most efficient and well managed companies attract customers, grow and survive. Let future rates be adjusted accordingly.
“Insurance companies must obtain rate approval from the Department of Insurance in their respective State”
Partially true – some states have “use and file” laws where pre-approval of rate changes by the state aren’t required before the carrier can implement the new rates.
So, what happens when an insurer in such a state files rates and later discovers they cannot be supported by an actuarial analysis? Oops! Insurers in file & use states DO NOT actually file rates and try to justify them later.
Just like insurance rates went up right after 9/11 when all airline traffic stopped and the only way to get around was by car. A lot of people stranded away from home had to drive hundreds if not thousands of miles to get home. Consumer groups always have silly demands and this is yet another. BTW, truckers are all over the place right now helping to restock shelves that are being emptied by hoarders. How does that figure in?
I find this request to be premature for several reasons. First, we have no idea how long this virus slow down is going last. If it is a couple weeks, months, or years. As it takes insurance companies months or years to calculate a drivers rate, a few months or weeks is not really a valid time frame as to how rates should be impacted. Second, as rates are based on investment returns, coupled with insurance expenses, the profits on the auto loss side, may help level off the loss from investments. Simply looking at the miles driven over a short period of time is a sophomoric understanding of the rate making process, and what goes into it.
IF this condition continues, rates will reflect the insurance companies underwriting experience accordingly.
If rates are artificially cut, coupled with investment losses, then frequency increases, rates would then have to be raised more rapidly to reclaim lost revenue.
I don’t recall Mr. Hunter asking policyholders to call their insurers to ask for rate increases during the wildfires or when a hurricane is approaching. The idea of asking for changes within the current rating structure is the right idea.
If the impact of the slow down is long term, loss experience and trending will impact future filings. In recent years, loss ratios increased because the economy improved and drivers were driving more. In the Auto insurance business, there is always a lag. Recent developments in metered driving may reduce this lag.
Hartwig’s comments are ill-informed and demonstrably false. The Alaska department has already acted in response to the obvious change in exposures for many lines of business: https://www.commerce.alaska.gov/web/Portals/11/Pub/INS_B20-10.pdf
It is not a self-equilibrating system. The assumptions forming the basis for current rates no longer apply. Saying that rates will eventually reflect historical changes doesn’t help the folks who are no longer driving, who no longer pose the exposure insurers anticipated, for whom rates are now excessive and for whom immediate relief is both essential and compassionate.
Birny – Let’s assume the economy gets back to normal in 3 months. Would you then support increasing rates back to their “normal” level at that time?
Too early for any actions from insurance carriers other than what we’ve seen so far (billing extensions, some relaxing of policy language for delivery). Certainly carriers will see the impacts of this event with lower frequency in their loss data but until companies have actual results on how long this last, how employees will be paid (this could change over time), amount of billing write-offs, and sales results, it makes no sense to lower rates to a level that is not accurate.