The impact of a virus on motor insurance and claims

The coronavirus COVID19 has been and continues to be an unprecedented situation for all of us. Not least it is a new and unique event for the insurance industry.

Across the world, the number of people driving has dropped dramatically. The large reduction in traffic volume has therefore resulted in far less accidents. Less accidents means less claims for insurers. Rijkswaterstaat of the Netherlands, a government agency for infrastructure indicates that the Dutch restrictive measures heavily affected the traffic jam intensity in the Netherlands (see graph, source). Motor Insurers may signal this as good news, fewer claims means less claims outlay. But what is the impact beyond this initial notion of savings in claims expenditure?

Support and commitment

Various national and industry bodies have been quick to ensure that consumers and insured people are not disadvantaged and that there remains a commitment from insurance companies to support the people who need help during the COVID19 situation (see image). Such support has come in various forms from refunds on insurance premiums in some countries to waivers on vehicle safety certification for the purposes of insurance validity. Now that the lockdowns in various countries have been eased, we need to consider what the future will hold both in the short-term and long-term.

Decline of global tourism

As an industry we must prepare for changes in consumer and driver behaviour. Within CED CBC we are focused on the impact on cross-border travel. At the height of the lockdowns in Europe, motor travel between countries was largely restricted to essential trade and supply. This has now changed, and we can expect that following an extended period on lockdown, people will want to travel to see friends, family or to go on holiday. So, in June CED conducted a poll to assess attitudes towards travelling abroad. We asked the question: Now that lockdowns are lifting do you plan to travel again internationally for work or pleasure? The results were mixed but show a change in behaviour or attitude to international travel (see graph).

Because controls are still in place however, the OECD predicts a total decline of the global tourism economy by as much as 45%-70% in 2020 (see graph, source). European Commissioners have all urged countries to use the Temporary State Aid Framework in order to support industries which have been most impacted by COVID19, the tourism and transport sectors are specifically in their focus.

Now that lockdowns are lifting do you plan to travel again internationally for work or pleasure?

Yes, just as before lockdown 37% Yes, driving more than flying 20% Yes, flying more than driving 13% No, no plans to start travel 30%

CED dealing with rapid developments

CED predicts that there will be a surge in domestic claims activity in the coming months. The increase in vehicle activity will be one factor and those claims which have not been reported due to slow down in activity may well now be notified. International travel and trade will return but tourism recovery typically begins locally. We are seeing increases in domestic holiday bookings in most countries as people are starting to travel but initially prefer to stay closer to home. Short breaks and domestic travel will rebound before there is any major increase in demand for international travel. CED is set to deal with this head on for our clients as we face up to the new normal and deal with this rapidly developing situation. We have helped our clients meet the immediate operational needs during the past few months. Remote working has seen us, and our clients, maintain service levels.

Only time will tell…

Questions for the future will focus on the economic fallout of the crisis. Insurers coming out of a period of low claim expenditure could be met with the inherent rise in fraud seen during economic downturns, increased customer attrition as people shop around far more for cheaper premiums. Already a reduction in new car purchases is being seen. New car registrations in the EU dropped on average 76.3% in April, from the same month a year ago, according to data from the European Automobile Manufacturers Association (ACEA) (see graph). Will this mean older cars staying on the road, which in turn could result in higher claim frequency due to poor safety or maintenance? Or just fewer cars, therefore fewer policies of insurance? Only time will tell how the insurance market will be following the fundamental impact of the corona virus.

Reduction in new car purchases

Germany -61.1% France -88.8% Spain -96.5% United Kingdom -97.3% Italy -97.6%

Do you have any comments, questions or ideas regarding this? We are happy to receive your feedback!