How Claim and Accident Frequency May Be Impacted by COVID-19

Susanna Gotsch / COVID-19, Industry News /

There are now nearly 200K confirmed cases of COVID-19 globally.  The virus is now anticipated to be much more a demand shock versus a supply shock to the global economy.

Trying to assess what the long-term impact of COVID-19 to the automotive, insurance and collision repair industries is difficult.   Here are some potential outcomes of the coronavirus to the automotive insurance and collision repair industries.

Fewer potential accidents as miles driven fall

Historically the U.S. has seen overall miles driven in the U.S. fall during recessionary periods.  During the last recession (the “Great Recession”) that ran from December 2007 to June 2009, miles driven fell over 3 percent from its pre-recession peak in November 2007 to its lowest point in February 2010 during the post-recovery.

Source: FRED® Moving 12-Month Total Vehicle Miles Traveled, www.research.stlouisfed.org.

Countries, states, and communities across the globe are on lockdown, asking residents to go out only for food and other essential needs.  Businesses have begun to close for an unspecified amount of time, and many are having workers work remotely.  This will most certainly lead to significant declines in miles driven, particularly at peak driving times, where congestion has been shown to drive auto accident and claim frequency.

An index of congestion from TomTom NV was down by nearly half several days so far in early March, and data from INRIX showed shopping mall visits in Seattle plunged 28 percent on Saturday 3/7/20, and another 26 percent the following day.[1] INRIX also completed analysis comparing the percentage change in speeds on major roadways in the metro areas with the highest number of confirmed cases of COVID-19 as of 3/10/20: San Francisco, Seattle, New York City, Los Angeles, and Boston.[2]  The chart below illustrates the impact in Seattle, where there was a 30 percent increase in average travel speeds during the 8:00 am to 5:00 pm peak commute times on the first day of Amazon and Microsoft’s work from home policy was effective.[3]

Source:  https://inrix.com/blog/2020/03/coronavirus-commute-trends/.

The Financial Times published data on the impact to traffic and congestion in China during the height of the outbreak.  The data is based on data provider Wind, and the index is a ratio of peak to non-peak travel times – as readings exceed the value of 1, the longer it takes to travel the same distance within the 100 cities tracked during rush hour.   Traffic congestion typically falls during the Lunar New Year holiday, but this year the ratio dropped to a record low and has not substantially recovered.[4]

Recently released data on the combined January-February 2020 economic data for China shows growth plummeted across all sectors.  Retail sales fell 20.5 percent, and industrial production falling 13.5 percent, a larger decline than it experienced during the Great Recession.[5]  It’s also believed that the data could actually get worse, because despite the fact that China has emerged from the coronavirus, it’s combined January-February results may be understating a much more significant decline, as the country-wide shutdowns didn’t occur until late January.[6]

Unfortunately, this comes also at a time when gasoline prices have fallen – the average price of gasoline per the U.S. Energy Information Administration has fallen to $2.248 per gallon the week of 3/16/2020 from $2.561 at the beginning of the year. This represents a nearly 14 percent drop, compared to a 47 percent drop between the price per gallon as 12/31/2007 to the lowest price $1.642 per gallon during the recession 12/28/2008.  With the price of U.S. crude oil plummeting to a four-year low of $27 per barrel, energy companies are just one more industry experiencing significant challenges.[7]

Numerous economists have already predicted the U.S. economy will contract in the first quarter, and experience slower growth in second quarter, and remainder of 2020.  Estimates for the drop in economic growth range from a decline of 1.6 percent to 2 percent in the first quarter, to a full 5 percent decline for the first half of the year.[8]

Source:  U.S. Energy Information Administration, https://www.eia.gov/petroleum/gasdiesel/.

Auto claim frequency during and after the Great Recession saw a steep decline.  The number of claims per 100 insured vehicles for collision and liability coverages combined was 4.79 for the rolling four quarters ending Q1 2008 and fell nearly 12 percent to 4.22 claims per 100 insured vehicles for the rolling four quarters ending Q3 2008.[9]  Collision claim coverage alone fell nearly 16 percent from 6.29 claims per 100 insured vehicles for the four quarters ending Q1 2008 to a low of 5.3 claims per 100 insured vehicles for the four quarters ending Q2 2011.  Independently liability claims experienced a nearly 10 percentage decline during that same period.

Source: ISS Fast Track Plus™ Personal Auto, As of Sept 30, 2019.

As more individuals are forced to work from home and discontinue all trips except those to stock up on essential items, it’s clear we can expect miles driven to plummet, and auto claim frequency to follow suit.

Larger decline in new auto sales in the U.S. and globally than originally projected for the year

Auto sales in China fell 33 percent in January 2020,[10]  and fell another 79 percent in February 2020.[11]  And a full recovery later in the year is unlikely.   Auto sales in China had already fallen over the last two years, and analysts are projecting sales will be down between 3 and 5 percent versus 2019 sales.[12]

In the U.S., analysts are predicting CY 2020 auto sales will fall by as much as 20 percent versus previous forecasts of a 1-2 percent decline for the year.[13]  Largest decline in sales are anticipated in March and April.  Mid-March, the UAW and the Detroit automakers agreed to shutdowns of plants to stop the spread of COVID-19.[14]  Other automakers are continuing to halt production due to the shortage of parts, identification of employees testing positive for COVID-19, as part of broader community/state quarantine efforts[15], or in anticipation of fewer sales in CY 2020.[16]

Consumers are shopping less overall – whether in stores or online.  According to the digital marketing firm WITHIN’s “COVID-19 Retail Pulse” sales across numerous categories measured are down.  Using the week of February 18 as the pre-COVID benchmark, their data shows fashion ecommerce revenue and omnichannel revenue were down by 63 percent as of March 16th; pure-play ecommerce was down 46 percent, and revenue for subscription and at-home convenience was up 204 percent.[17]  Amazon announced it was looking to hire 100,000 people to help meet demand; but has said it will only receive vital supplies at its U.S. and European warehouses until April 5th to free up inventory space for medical and household goods deemed essential.[18]

Numerous automakers are already offering consumers the ability to delay payments, purchase vehicles with zero-interest loans stretched out over many years or offering to pay monthly payments should a customer lose their job after purchase.[19]  Expect additional programs to be announced as the U.S. government works with the numerous industries experiencing significant decline in sales from the COVID-19 outbreak.  The industry may also see an unexpected bump in sales once the outbreak has been contained.  An unexpected outcome of the SARS epidemic was a 30 percent plus surge in vehicle sales in China in 2003 versus the prior year, as urban populations began to shun public transport.[20]

Larger decline in new auto insurance premium related to new auto sales

During the Great Recession, private passenger automobile net premiums declined, as auto sales in the U.S. fell, and consumers opted to drop all but the mandatory coverage.  The largest drop occurred within private passenger auto physical damage in CY 2009:  -2.2 percent.[21] If auto sales fall as precipitously as we saw in 2009, private passenger auto premium growth will also be impacted.

Longer fulfillment time of certain replacement parts driving up claim and repair cycle times

The disruptions in auto parts manufacturing that occurred in China in January and February is expected to result in supply shortages beginning in late March through April and June.  If miles driven fall, this could lessen or delay that impact.[22]  Automakers looking for components for use in production had begun shipping at-risk components via cargo plane, and where necessary, looking for alternative suppliers or manufacturing locales for affected parts.  As automakers come to grips with the real possibility that auto sales will fall, more will look to slow production further.

As the virus continues to spread, leading to less driving due to quarantines and desire to limit overall exposure our industry can expect a drop in auto accidents and claims as well.  With the epicenter of COVID-19 now having moved out of China to Europe and the U.S. the overall impact to the global economy will be significant.  We will continue to monitor the situation closely and provide additional updates during this unprecedented time.

 

[1] https://www.wsj.com/articles/road-and-transit-use-falls-hinting-at-declining-commercial-activity-11584442801

[2] https://inrix.com/blog/2020/03/coronavirus-commute-trends/.

[3] Ibid.

[4] https://www.ft.com/content/21f3fcce-5a10-11ea-a528-dd0f971febbc

[5] Nathaniel Taplin.  “China’s Coronavirus Downturn Is Now Official—and Brutal.”  https://www.wsj.com/articles/chinas-coronavirus-downturn-is-now-officialand-brutal-11584354714?mod=djemheard_t.

[6] Ibid.

[7] https://www.wsj.com/articles/gasoline-is-cheap-americans-cant-take-advantage-11584523802.

[8] https://www.wsj.com/articles/u-s-braces-for-sharp-economic-downturn-as-coronavirus-bears-down-11584386207.

[9] ISS Fast Track Plus™ Personal Auto, As of Sept 30, 2019.

[10] Graeme Roberts.  “Coronavirus leads to global vehicle sales nosedive.”  www.just-auto.com, 4March2020.

[11] Trefor Moss.  “February sales were down 79% from a year earlier, with just 310,000 vehicles sold nationally.”  March 12, 2020.  www.wsj.com.

[12] Ibid.

[13] Paul Lienert.  “Morgan Stanley sees 9% U.S. car sales dip from coronavirus.”  https://www.autonews.com/retail/morgan-stanley-sees-9-us-car-sales-dip-coronavirus?utm_source=dlvr.it&utm_medium=twitter.   20% decline projection by RBC Capital https://www.wsj.com/articles/coronavirus-threatens-auto-industrys-record-run-of-robust-sales-11584532801.

[14] https://www.reuters.com/article/us-health-coronavirus-autos-uaw/detroit-automakers-agree-to-uaw-request-to-shutter-u-s-plants-source-idUSKBN2152Z8.

[15] Ibid.

[16] https://www.autonews.com/manufacturing/honda-halt-north-american-production-6-days.

[17] https://covid19.within.co/covid-19retailpulse/

[18] https://www.nytimes.com/reuters/2020/03/17/business/17reuters-health-coronavirus-amazon-com-exclusive.html?searchResultPosition=6.

[19] https://www.wsj.com/articles/coronavirus-threatens-auto-industrys-record-run-of-robust-sales-11584532801.

[20] Amy M. Jaffe.  “Concerns Over the Coronavirus Spread to the Oil Industry.”  Council on Foreign Relations, February 12, 2020.

[21] III Insurance Fact Book 2019.

[22] Rob Merwin.  “Coronavirus hits aftermarket, impacts miles-driven and disrupts Chinese supply channels to U.S.”  March 11, 2020, www.aftermarketmatters.com.