Drivers may be getting a break on insurance. With stay-at-home directives and other travel restrictions in place, the number of miles most Americans drive is down dramatically. Already, we’ve seen gas prices drop dramatically owing in part to the fall-off in demand. But what about auto insurance rates? Can people who are now doing less driving get a break on their auto insurance rates? The answer is: That depends mostly on the type of insurance you have. It also relies on the willingness of your insurance company. There are also some caveats for those thinking of suspending their coverage.
Insurers issue refunds
Taking a proactive stand, insurer Allstate announced that it will provide up to a 15-percent refund on vehicle insurance. This discount is being applied to April and May payments. In all, up to $600 million is going back to policyholders as a result.
Wisconsin-based insurer American Family promises $200 million back for customers as a result of reduced driving over the same period. Customers get $50 per insured vehicle.
How rates are set
When a motorist signs up for insurance, the provider will typically ask how many miles per year they drive. They may revisit this question every year or so. On average, Americans drive 12,000 miles per year. Usually, a driver doesn’t earn a lower rate unless they’re doing fewer than 7,500 miles annually, this according to insurance-comparison site The Zebra.com’s 2020 State of Auto Insurance Report.
Your Rates May Go Down Automatically
Some drivers have usage-based or pay-as-you-drive insurance. This coverage entails a telematics device in their car or a smartphone app to record how far they drive. It also tracks the time of day they’re driving and even how hard they accelerate and brake. The device transmits all that data to the insurance company, which sets rates accordingly. Companies such as Metromile and Root operate on a pay-per-mile formula. Their customers should naturally reap savings with fewer miles driven. Other insurers that offer this type of insurance, including Progressive, Nationwide, and Esurance, may alter rates at renewal time in response to fewer miles driven.
Most Drivers Will Have to Ask for a Break
Most drivers who do not have mileage-based insurance and no tracking device in their car are going to have to be more pro-active. Let your insurance company know how much you’ve cut back on your driving. The savings from driving fewer miles will vary. Nicole Black, The Zebra’s communications director, says, “Nationally, drivers can expect to save six percent if they reduce their driving from 15,000 miles per year to under 7,500. Californians, however, would save 32 percent, or more than $550.”
Drivers might also consider eliminating optional coverages such as rental-car coverage and roadside assistance as a means to lower their rates.
Why Insurance Rates Are Unlikely to Decline Overall
Lower premiums across the board in response to fewer claims due to an extended change in national driving habits is not a likely. Scott Holeman, of the Insurance Information Institute, says, “If we begin to experience a sustained reduction in auto claims frequency, that could lead to favorable rate changes for drivers.” But he also notes that “Auto insurance rates are established using multiple years’ worth of data, which leads to gradual premium changes.”
Regulators, however, might prompt insurance companies to move more quickly. Already, the Consumer Federation of America has proposed that auto insurers provide rebates. The CFA says insured drivers should receive what it terms “offset payments” while coronavirus travel restrictions remain in effect. The group said a $1,500 annual policy for someone driving 15,000 miles per year would generate an offset of $50 for each month of travel restrictions.
Dangers of Dropping Coverage Altogether
Motorists who have a car that they are not driving at all during this period may be tempted to suspend their insurance coverage altogether. That can be a risky move. First of all, most states require insurance coverage. An owner may need to turn in their license plates, then re-register the car when putting it back on the road. These rules vary by state. Beyond the legal ramifications, a driver who suspends insurance coverage will see higher rates upon their return. Beck cautions that “dropping your insurance means you will see a 7- to 12-percent increase in rates for the same coverage if and when you re-up it.”
Instead, drivers who are facing financial hardship due to loss of income might also explore the option of deferring premium payments. Allstate has announced that it will allow customers to defer two consecutive premium payments without penalty. The company also is pausing insurance cancellations for non-paying customers. Geico is similarly pausing cancellations at least through the end of April, and Progressive and the Travelers are doing so through mid-May.
