Property and casualty insurers are uniquely positioned to deal with the potential impacts of the novel coronavirus. And from a claims perspective, the ongoing pandemic may even prove helpful for them to some degree.
Government restrictions prompting people to stay home and avoid spreading the virus have resulted in fewer cars out on the road, which some analysts believe may equate to a decrease in accidents.
"I think it's pretty clear we have less driving across the country," Piper Sandler analyst Paul Newsome said. "It's widely believed that we're going to see a slowdown in auto-related claims."
Some consumer advocacy groups have asked regulators to make insurers reduce their premiums to reflect new driving circumstances. But industry experts did not seem to be too concerned about the possibility that government authorities would step in and create policy that might require insurers to delay premium payments or reduce the cost of premiums to offset less drivers on the road, among others.
The Insurance Information Institute's Michael Barry said the idea of retroactively revisiting a policy to offset premiums is "probably not the best way to go at the moment" since mileage is just one of a dozen factors that go into auto underwriting.
A few major insurers have decided to offer special plans to help alleviate consumer costs. For example, Allstate Corp. announced that its policyholders can request a special payment plan that lets them skip two consecutive premium payments without penalty. Liberty Mutual Holding Co. Inc. is extending payment dates and waiving fees for auto and home insurance customers who are negatively impacted by the coronavirus. GEICO Corp. is pausing cancellation of coverage for missed payments and policy expiration until April 30.
"You wouldn't see devastating effects in the insurance industry if everyone got to pay their premium two weeks or even a month late," Newsome said. There would be some earnings impact but not a book value impact, he added.
Commercial versus personal lines
These types of changes are something that CreditSights analyst Josh Esterov said he expects other insurers will make as well, at least in limited cases, to help boost the companies' public images, if nothing else. He noted that there have been instances where insurance regulators have shown willingness to make modifications to common practices on the personal insurance side of things, but more rarely on the commercial side.
In the U.S., Progressive Corp., Travelers Cos. Inc. and Liberty Mutual are the largest writers of commercial auto, according to an S&P Global Market Intelligence analysis of 2019 data. On the personal lines side, State Farm Mutual Automobile Insurance Co., GEICO and Progressive sat in the top three spots.
Theoretically, a decline in driving would be more to the benefit of a personal lines company, and less to the benefit of those that write more commercial, Newsome said. Overall, he said it is important to recognize that all the insurers that write personal lines auto also write commercial, and fewer cars on the road will probably help both lines even as deliveries rise, because there are fewer situations where there could be accidents.
There could be an issue, however, if the government does not require policyholders to pay their premiums at all, or forced insurers to cover things that were not initially written into their policies. In particular, there have been some efforts to have insurers pay out for business interruption policies, even though such policies normally exclude pandemics.
"There wasn't premium paid for those risks so that just drops to the bottom line for the insurers and there's no recovery there," Newsome said.
During his comments on a virtual National Association of Insurance Commissioners meeting, American Property Casualty Insurance Association President and CEO David Sampson went as far as to say that the "stability of the sector could be impacted" if policymakers force insurers to pay for claims that were not included in their policies.
Esterov and fellow CreditSights analyst Austin Baun said they view the coronavirus as being similar to a medium-size catastrophe event and said it would not be the "first order effect," direct claims from the outbreak, the business and supply chain interruption, but rather the "second order of effect" that could be more damaging for insurers.
That second-order effect includes the impact from falling interest rates and volatility in the equity markets, which negatively affects the ability to drive profitability on investment portfolios and could also lead to an increased probability of unfavorable reserve development, the CreditSights analysts said.
When asked if insurers are worried that people would be unable to pay premiums, Piper Sandler's Newsome pointed out that customers who do not pay their premiums should be unable to file claims. In such scenarios, there would be less revenue and less profit, but the impact is not as big, he said.
"The big picture is that the insurance industry shrinks and grows with the overall economy, and that's independent of what you see happen from a risk of claim perspective," Newsome said.
Most insurance companies are "properly" reserved and reinsured, according to Neil Alldredge, senior vice president for corporate affairs at the National Association of Mutual Insurance Companies.
In general, insurers are expected to be resilient through the pandemic, although one U.S. regulator has warned that smaller health insurers may be at risk of insolvency if the virus curve does not flatten.