A colleague of mine received his motor insurance premium renewal last week. His reward for adding another year of careful accident-free motoring to his 7 years no-claims history? A friendly renewal email thanking him for his custom and a 156% hike to his renewal premium.Such an exorbitant increase could not be justified in normal circumstances and is inexplicable when, because of the Coronavirus lockdown, he and his car have been largely immobile for the last 3 months.
At the daily Coronavirus press conference the Government uses slides and data to show the effect of the lockdown on transport use. The data shows that vehicle use dropped to 23% at the height of the lockdown and although it has now recovered to around 65%, has averaged less than 45% during the 3 months since the start of the lockdown. Whilst it is expected that vehicle use will increase as lockdown measures are eased, a return to pre-virus levels seems unlikely when so many people are working from home.
The knock-on effect has been a huge reduction in the number of motor claims with one well known motor insurance company reporting a fall in claims of 70%. This is hardly surprising because fewer vehicles means quieter, safer roads and fewer accidents.
It is difficult to calculate precisely how much motor insurers will save; but a conservative estimate, based on a 20% drop in car use for the year, would be well in excess of £1 billion. The ABI’s 2019 Insurance and Long Term Saving Key Facts document states that personal lines motor insurers paid out £22 million per day in motor claims, making an annual total of £8 billion. If a 20% drop in vehicle use is reflected in the cost of claims, then the motor insurance industry should see savings of up to £1.6 billion. The question is, will the insurance industry pass this unexpected windfall on to policyholders?
Admiral Insurance was the first major insurer to respond and automatically refunded £25 to all of its policyholders. LV adopted a more restricted approach and is offering a refund of between £20 and £50, but only to those who can show they have suffered financially as a result of the Covid-19 pandemic. One or two other insurers have indicated a refund may be available where a customer believes their annual mileage will be significantly lower than originally estimated, however these refunds will not be automatic.
This patchy half-hearted response to passing on their savings from reduced claims bears little resemblance to the insurance industry’s wholehearted response to the whiplash reforms. When the insurance industry lobbied the government to implement the whiplash reforms, 26 motor insurers generously pledged to pass on 100% of the £1.3 billion saving by reducing insurance premiums by £40 to £50.
With the implementation of the Civil Liability Act postponed until next year it remains to be seen whether this commitment will be honoured. However if the reluctance of the insurance industry to share its £1bn plus Covid-19 windfall is anything to go by, it looks increasing unlikely.