I recently discussed a paradigm shift I see coming in the travel industry, and knock-on effect for premiums for coverage bought by that vertical. While we have seen a lot of discussion of the immediate-term impact on Auto claims, I also see a longer-term change in demand for cars. as well as a shift in ride-sharing.
Right now, Auto writers are dividending and discounting to return premium to customers due to the way claims activity has fallen off a cliff as people follow stay-at-home orders and stop commuting to work. For my family, we went from getting gas weekly in my wife’s car to being only halfway through a tank of gas I bought in early March (eight weeks ago, as of writing this).
This short-term change in driving habits is not surprising. What may be more surprising is that I think we can expect some more permanent shifts in car ownership and driving habits.
Personal Vehicle Demand Paradigm Shift
Right now, many people who did not regularly work from home are only working from home. Similarly, many companies who did not allow any work-from-home arrangements suddenly had to get comfortable with the idea and put in place the means to facilitate it.
Like my comments on business travel demand changing, suddenly people who never considered the idea of forgoing a work commute are potentially going to be able to permanently work from home. Case in point, Nationwide has decided that they will be moving to a fully-remote model outside of a handful of major corporate offices, and will even vacate their buildings where they’re making that shift.
Let’s play this scenario out a bit.
With the forced acclimation to working from home (for both employees and employers), and some like Nationwide seeing a path forward based on remote working, people may find themselves not needing a car, or perhaps dual-car households will cut back to sharing a single car.
And what if your employer does not follow Nationwide’s path, and yet you find yourself really taking to working from home? Might you seek out a role that allows you to keep telecommuting? And if so, you may no longer need that second car.
My wife and I both work from home now, and when her lease is up, I will seriously be thinking about whether we both need a car anymore. There are obviously going to be times when it would be good to have one, but I could rent a car for five-to-ten days a month. As I look back on the past few months of our vehicle needs (including pre-COVID-19), I struggle to think of even that many instances where we both, separately needed a car at the same time
And talking to friends and colleagues, I know we aren’t alone.
Aside from the monthly payment and maintenance savings, we would also obviously save on Auto insurance premiums. And hence the issue for insurers.
Many carriers are already thinking about reduced personal car ownership due to autonomous, shared vehicles, but that is a future that’s still quite a way off in the distance. This is a different cause, but may in deed start to reduce personal vehicle ownership before many carriers contemplated taking a hit in Auto premiums from car ownership dropping.
As of 2017, there were 270.8 million vehicles registered in the US, and a population of 325.1 million people at the time. That’s 0.83 cars per person. If that ratio reduced down even slightly to 0.80, that would nearly 11 million fewer cars. With a national average Auto insurance premium of $1,427 per vehicle according to Nerdwallet, that’s a reduction in the Auto insurance market of over $15.5 billion.
And that’s only a 4% decrease in the number of cars per person.
Counterbalancing Pressure
At the same time, some people are exhibiting pressure to and interest in buying a car that do not currently own one. Over the past few, many people – especially city-dwellers – have used ride-hailing (Uber, Lyft, etc) and ride-sharing solutions (ZipCar, scooter and bike share programs) instead of owning a vehicle.
In a world where you are concerned with the level of sanitization of a vehicle, especially one in which many different people with different health conditions and personal hygiene habits are in it each day, as a car guy, I’ve gotten lots of calls from non-car-owners asking what they should buy as they feel they have to have their own car.
Some of this is reactionary and impulse-driven, and with a few days to cool off, they often back down from the urge. But not everyone will, especially when they have more reasons to drive places as being in public and traveling start to ramp back up.
While this may slow the reduction in car ownership I discussed above, it also will hurt ride hailing and sharing solutions as people fear riding in vehicles that could be seen as high sources of exposure to COVID-19 or other communicable diseases.
That can have the effect of slowing the eventual end of personal car ownership that some carriers are working on adjusting to today. It also would serve to reduce insurance for these high-mileage vehicles.
We still do not know exactly how, when and to what extent Auto premium will be impacted, and which demand factors will be the prevailing ones to change the market. While there are clear claim trend shocks right now (in a good way), I believe we will see a reduction in car ownership, and a pushing out in the timeline for autonomous, shared vehicles reducing car ownership.
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This post is inspired by the upcoming book, The Future of Insurance: from Disruption to Evolution, coming out June 24th, 2020 at Connected Claims USA, written by Bryan Falchuk and published by The Insurance Nerds.
Pre-order your copy today at future-of-insurance.com.
