If your auto client base is driving less because of the pandemic, then its claims costs should drop in proportion. Right?
Not necesessarily, suggests the head of Canada’s largest auto insurer.
Intact Financial Corp. looked at its database of driving data usage-based insurance clients and noticed the distance driven dropped about 50% from the onset of the COVID-19 pandemic, CEO Charles Brindamour said Wednesday.
But “one has to be careful about assuming that frequency and all your costs are coming down by that [same] amount, because it is not the case,” Brindamour said during a “virtual fireside chat” with John Aiken, financial services analyst for investment bank Barclays Capital.
Aiken asked Brindamour about the impact of the COVID-19 pandemic on auto collision frequency and what this will mean for Intact’s combined ratio going forward.
“It is very early to judge what the driving and physical damage frequency means for accident benefits and [liability for bodily injury], which is half the product across the land,” said Brindamour. “I can tell you in periods of economic slowdown, you have to keep your eyes on disability and pain and suffering awards.”
Intact’s own telematics data indicated the number of kilometres driven dropped 50% across its book of UBI business during the throes of the pandemic lockdowns in April. But the numbers have picked up in the last couple of weeks. About 10% to 20% of Intact’s UBI clients have actually started driving more after the states of emergency in Canada were imposed during the pandemic, Brindamour said.
For example, some people started to use car to go to work, while in the past they used public transport.
Intact still anticipates a general decline in auto collision frequency and is providing pricing relief for auto customers who drive less. It is offering some customers personal auto insurance premium reductions of 15% on average for three months to reflect changes in driving habits, Intact said May 5 in its financial report for the first three months of 2020. The company is also offering personal auto insurance premium reductions of 75% on average, per month, for as long as customers park and safely store their vehicles.
Intact reported its combined ratio in personal auto improved 7.3 points from 101.9% in the first quarter of 2019 to 94.6% in the most recent quarter. Intact attributes those numbers in part to better-than-normal weather in the three months ending Mar. 21 as well as actions it took before pandemic to improve profitability.