Car Insurers Issuing Coronavirus Refunds

Summary

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WSJ Your Money Briefing — Car Insurers Issuing Coronavirus Refunds

Date: April 7, 2020
Host: J.R. Whalen (B)
Guest: Leslie Sism (Wall Street Journal reporter) (C)
Episode Focus:
How the COVID-19 pandemic, and the resulting drop in driving, led major U.S. car insurers like Allstate to issue partial refunds, and why industry pressure and public expectations shaped these moves.

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Main Theme

This episode explores the financial and industry dynamics behind car insurance companies’ decisions to refund customers during the coronavirus pandemic. It delves into how stay-at-home orders dramatically reduced driving and accident claims, spurring both financial windfalls for insurers and mounting pressure from consumers, advocates, and public opinion for insurers to pass some savings back to customers.

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Key Discussion Points & Insights

1. Pandemic’s Impact on Car Insurance Claims

• Dramatic Decrease in Driving:
  Leslie Sism explains that widespread stay-at-home orders have emptied the roads:
  • “People are just not getting out in their cars to commute to work. That's normally where some of the heaviest traffic in this country takes place.” – Leslie Sism (01:59)
• Significant Decline in Accidents:
  Fewer cars on the road means fewer accidents and, consequently, fewer insurance claims:
  • “Miles driven is one of the biggest correlations with traffic accidents... So you don't have wrecks if your car is parked in your driveway or your garage generally.” – Leslie Sism (02:37)

2. Car Insurers’ Refunds & Response

• Major Refund Announcements:
  • Allstate issued $600 million in refunds to about 18 million car owners.
  • American Family returned $200 million.
  • “They said they are doing this because of the dramatic decrease in miles driven, which has translated into fewer claims.” – Leslie Sism (03:16)
• Insurers Share Unexpected Profits:
  Insurers anticipate lower outflows as accident claims drop, and they are “sharing some of this good fortune back with the policyholders.” – Leslie Sism (03:36)

3. Pressure to Issue Refunds:

• Consumer Advocates and Regulators:
  • Groups like the Consumer Federation of America petitioned insurers to pass on “windfall” profits to customers (03:52).
  • Only a few insurance departments responded, mostly “urging” rather than ordering insurers to act.
• Earnings and Optics:
  • First-quarter reporting was set to highlight insurers’ strong earnings due to low claims, increasing pressure to act.
  • “Wall Street analysts have been saying recently that the car insurers were going to have pretty good results because the traffic was down.” – Leslie Sism (04:45)

4. PR and Social Media Concerns

• Potential Backlash:
  • Insurers faced risk of being seen as profiting during a crisis while customers “are jobless in many cases or otherwise seriously inconvenienced.” – Leslie Sism (05:18)
  • “It just was going to be bad optics for Allstate, say, to post a very, very good quarter…when so many of his customers are suffering.” – Leslie Sism (05:34)

5. Industry-Wide Impact

• Pressure to Follow Suit:
  • After Allstate’s announcement, analysts expected other companies would be pushed to offer refunds to avoid reputational damage:
  • “You don't want to be a big company looking like you're profiting at a lot of ordinary people's expense.” – Leslie Sism (06:10)
  • Mutual companies (owned by policyholders) can more easily refund; public insurers must also weigh shareholder interests.

6. Applicability Beyond Car Insurance

• Other Insurance Segments:
  • Car insurance is a rare bright spot; other areas like workers’ compensation face rising claims, especially from frontline workers exposed to COVID-19.
  • “Workers comp insurers are going to probably have a bad quarter, a bad second quarter, etc.” – Leslie Sism (07:42)

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Notable Quotes & Memorable Moments

• On the empty roads:
  “You can go look at any highway, go take a trip and see how little traffic there is.”
  — Leslie Sism (01:53)

• Direct consumer benefit:
  “They are sharing some of this good fortune back with the policyholders.”
  — Leslie Sism (03:36)

• PR sensitivity:
  “It just was going to be bad optics for Allstate…to post excellent results…when so many of its customers are suffering.”
  — Leslie Sism (05:34)

• Pressure on the industry:
  “Practically as soon as Allstate had put out its return of money, Wall Street analysts were predicting insurers would follow suit.”
  — Leslie Sism (06:02)

• Contrast with other insurance lines:
  “A lot of other parts of the industry are going to experience higher claims…The workers comp insurers are going to probably have a bad quarter.”
  — Leslie Sism (07:27–07:42)

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Important Segment Timestamps

• 00:35 – 00:54: Introduction and summary of episode’s focus.
• 01:14 – 02:59: How the pandemic changed car travel and insurance claims.
• 03:01 – 03:49: Specifics on refunds by Allstate and American Family.
• 03:52 – 05:11: External advocacy and regulatory pressure on insurers.
• 05:17 – 05:54: Public relations and potential backlash for not issuing refunds.
• 06:01 – 07:02: Industry-wide implications and the likelihood of more refunds.
• 07:09 – 08:08: Discussion of other insurance lines and contrast with the car insurance segment.

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Summary Takeaway

The episode provides a timely breakdown of how drastically reduced driving during the COVID-19 lockdown elevated profits for car insurers, resulting in significant customer refunds. This unprecedented event was shaped by consumer advocacy, regulatory pressure, and acute awareness of public sentiment, as insurers sought to avoid negative headlines while setting new standards for industry response during a crisis.

Transcript

[A]

Still running global payroll like a relay race Deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ.

[B]

Here's your money briefing for Tuesday, April 7th. I'm J.R. whalen for the Wall Street Journal. In most of the country, the coronavirus pandemic is keeping millions of Americans in their homes and their cars off the road. And that's meant far fewer accidents. And as a result, some car insurance companies are refunding a portion of customers monthly premiums.

[C]

They also faced the criticism in social media potentially as they were reporting really good earnings. And their policyholders are jobless in many cases or otherwise seriously inconvenienced by having to stay in their homes under these shelter in place orders.

[B]

That's Wall Street Journal reporter Leslie Sisum coming up. She'll tell us if the rest of the insurance industry could make a similar move. The stay at home guidelines issued around the country can be frustrating. But here's a positive note. With so many Americans cars parked in their driveways, the number of accidents has plummeted. Now some auto insurance companies are issuing partial refunds to their customers. Wall Street Journal reporter Leslie Sisam joins us with details. So Leslie, how much has the pandemic impacted claims made to car insurance companies?

[C]

There is a potentially very large impact. We are just starting to get some data around how big an impact. But you can go look at any highway, go take a trip and see how little traffic there is. People are just not getting out in their cars to commute to work. That's normally where some of the heaviest traffic in this country takes place. People driving to their workplaces, people driving to their train stations or people going out to eat, going to dinner, going to the shopping center. And none of that's happening right now. So the roads are practically empty. The fact that roads are empty is significant in terms of claims because miles driven is one of the biggest correlations with traffic accidents. When there are these heavy rush hours, you're going to get a lot of fender benders. You may get more serious wrecks when people are on the roads. They could be out on country roads where they're going to run into deer and other animals. So you don't have wrecks if your car is parked in your driveway or your Garage generally.

[B]

And how are insurance companies responding?

[C]

Allstate announced that it will return $600 million to approximately 18 million car owners. And a Midwestern insurer called American Family is going to return $200 million to its smaller base policyholders. They said they are doing this because of the dramatic decrease in miles driven, which has translated into fewer claims. Thus they are sending fewer dollars out the door. They sent fewer dollars out the door in late March. They anticipate sending fewer dollars than planned on claims out in April. So they are sharing some of this good fortune back with the policyholders.

[B]

And what kind of pressure were the companies facing to do this?

[C]

Consumer advocacy groups such as the Consumer Federation of America and the center for Economic justice had been writing letters petitioning state insurance departments to force insurance companies to share any windfall they were going to get from reduced miles driven to share that money back with policyholders. To date, only a couple insurance companies had responded to those petitions and they had issued letters that urged or encouraged insurers to treat policyholders generously. But they stopped short of an order. Now, the pressure was expected to mount in the beginning, the middle of the month of April, when the publicly traded companies would begin reporting their first quarter earnings. Wall street analysts have been saying recently that the car insurers were going to have pretty good results because the traffic was down so in the toward the end of March. So it was going to become evident at some point in April how good times have been for the car insurers as a result of super a few miles being driven.

[B]

Was there also a potential PR problem the companies were facing that led them to this decision?

[C]

They also faced the criticism in social media potentially as they were reporting really good earnings. And their policyholders are jobless in many cases or otherwise seriously inconvenienced by having to stay in their homes under the shelter in place orders of the various governors across this country. So it just was going to be bad optics for Allstates say, to post a very, very good quarter, to post excellent results for the month of March when so many of his customers are suffering one way or the other.

[B]

Now, do you expect other companies similar to Allstate's size to issue refunds on Monday?

[C]

Practically as soon as Allstate had put out its return of money, Wall street analysts were predicting insurers would follow suit, that there will just be pressure on them from their customers or regulators. But you don't want to be a big company looking like you're profiting at a lot of ordinary people's expense. And to your point there, I'll explain. There are basically two kinds of major insurers in this country. There are those owned by their policyholders. So it's a relatively easy decision for those companies to say let's share some of our outsized profits back with their policyholder owners. The public ones generally have to worry about shareholders and meeting profit goals with their shareholders. But at the same time, if they're out getting bad headlines about being greedy, about not sharing this money with their customers, the shareholders themselves have to worry that these policyholders could take their business elsewhere.

[B]

Now, how about other companies in the insurance sector, not car insurance companies? Are they likely to make similar moves?

[C]

That's a good question. It's generally thought that the car insurance segment is a rare bright spot in the entire insurance landscape right now. A lot of other parts of the industry are going to experience higher claims. One of the other very large lines of business in the United States for the insurance industry is workers compensation. All employers must buy workers compensation. The health care workers, nurses, other medical staff, all kinds of employees in hospitals and maybe paramedics and even first responders. They're expected to end up filing a lot of workers comp claim claims related to them coming into contact with the coronavirus in the course of their work duties. So the workers comp insurers are going to probably have a bad quarter, a bad second quarter, etc.

[B]

All right, that's Wall Street Journal reporter Leslie Sism. Leslie, thank you so much for coming on the show.

[C]

Oh, it's my pleasure. Thank you.

[B]

And that's your money briefing. I'm J.R. whelan for the Wall Street Journal.

[A]

Still running global payroll like a relay race deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ.