Awaiting a verdict: The evidence so far on personal auto’s new normal

November 6, 2020 / 5 min read

This year, millions of people in the United States heeded the calls for social distancing. They canceled parties, stayed home, and emptied the streets. As expected, fewer drivers on the roads led to fewer accidents. It was just one of many turns on a wild ride—for personal auto insurers and the wider economy—that started with the COVID-19 pandemic and hasn’t ended yet.

Verisk is monitoring trends, providing likely scenarios and guidance, and strategizing with customers to help identify useful innovations to remain competitive.

Earlier in the year, we looked at potential developments in the personal auto market. More recent estimates by the American Property Casualty Insurance Association show premiums contracted by some $14 billion amid refunds and rebates, with the potential for soft demand to bring further contraction.¹ The rollercoaster ride has continued the past few months, and Verisk’s product leadership and actuarial teams have formed some hypotheses from the evidence to date on where the segment is headed.

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Exhibit A: Unemployment

In March and April of 2020, the unemployment rate spiked by more than 11 points, the fastest increase since monthly tracking of unemployment began in the 1940s.² In keeping with the rollercoaster landscape, unemployment then improved by nearly 7 points over the next four months through the third quarter.³ If these trends continue, we may see continuing recovery in the job market, but recent rises in coronavirus cases could reverse the improving trend.

Exhibit B: Mileage

March and April brought unprecedented declines in mileage, which dropped more than 40 percent by the end of April.⁴ As state and local authorities have lifted lockdowns, mileage has recovered, but it’s still down about 10 percent from 2019 levels.⁵ Fuel prices are down, and to avoid the perceived risk of infection, many travelers and commuters choose to drive rather than fly or take public transportation. But continuing high unemployment, increasing remote work, and online shopping may outweigh the effects that otherwise tend to increase miles driven.⁶

Mileage correlates closely with claims frequency and should continue to do so, but the big question is which way the mileage trend will move. One potential wrinkle, at least in the short run—is lower traffic density as “rush hour” lessens, perhaps leading to fewer “fender benders.”

Exhibit C: New-Normal Driving Patterns

Mileage isn’t the only driving pattern that’s shifting on the road to the new normal. Recent Verisk analysis suggests an emerging pattern of riskier driving behavior that arose on the open roads that existed during lockdown. More severe accidents have not declined at the same rate as overall accidents, and this pattern appears to be carrying forward during the new normal as miles driven continue to climb.

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Initial violations data provides further evidence. More severe violations haven’t declined at the same rate as overall violations. These riskier driving behaviors may lead to increasing claim severity.

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Commuting patterns are also changing, with new-normal mileage spread more evenly through the day and smaller spikes during morning and evening rush hour.⁷ As noted above, this could shift traffic density patterns, if only temporarily, and reduce the frequency of minor collisions that tend to occur in slow-moving traffic. We plan to monitor the impact on loss costs as these new-normal driving patterns continue to emerge.

Exhibit D: New Car Sales

Another measure of personal auto insurance demand and the relative health of the industry is new car sales. As with much of the new normal, the evidence is mixed. The economic recovery is mirrored in a “V” shaped recovery for new car sales, with a roughly 10 percent quarter-over-quarter drop in the first quarter of 2020, followed by a plunge of more than 33 percent in the middle during the second-quarter lockdown phase, and a still-down-but-better roughly 10 percent decrease in the third quarter.⁸

Exhibit E: Claims Frequency and Severity

In a year-over-year comparison of 2020 with 2019, frequency was down significantly in the first and second quarter of 2020, driven primarily by the peak lockdown months.⁹ For some coverages, claim frequency was as low as two-thirds of the 2019 level in March and down to one-third in April. Other than collision (OTC) coverage frequency is generally more variable since many of the claims are related to influences unrelated to driving like weather. However, similar patterns as other coverages are seen when looking only at OTC loss types that are more driving-related like animal collision, glass, and towing & labor. By June, as restrictions began to loosen and more cars were on the road, accident frequency began trending back toward normal, at about 15-30 percent below 2019 levels. But again, the new-normal distribution of miles driven at different times of the day is still developing.

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While there were fewer accidents during the peak lockdown months, severity was up slightly. Less traffic, in general, likely led to more speeding and reckless driving, while the lack of a rush hour could mean significantly fewer low-speed accidents. The estimated severity of losses in 2020 increased about 5-10 percent during peak lockdown

What will the second half of 2020 bring?

The jury’s still out on how the remainder of 2020 will unfold. Verisk will continue to monitor and report on how the personal auto market evolves and as new-normal trends continue to take shape.

Visit verisk.com/NewNormal for the latest analyses and contact your Verisk account executive if you would like to schedule a new-normal insurer strategy session to explore how you can better adapt and compete amid an acceleration of the inevitable.

Paul Schrodt, “Why Coronavirus Auto Insurance Price Breaks Could Be Here to Stay,” Money, July 10, 2020,
< https://money.com/covid-auto-insurance-breaks-continue/ >, accessed on November 4, 2020.
Joel Camarano and Dorothy Kelly, “Great Recession Infographic—Déjà Vu for Personal Auto Insurers?”, Verisk’s Visualize, June 5, 2020,
< https://www.verisk.com/insurance/visualize/great-recession-infographic-deja-vu-for-personal-auto-insurers/ >, accessed on November 4, 2020.
Verisk research (see infographic)
Ibid.
Ibid.
Jared Smollik and Raul Retian, “9 Likely New-Normal Scenarios for Personal Auto Insurance”, Verisk’s Visualize, August 12, 2020, < https://www.verisk.com/insurance/visualize/9-likely-new-normal-scenarios-for-personal-auto-insurance/ >, accessed on November 4, 2020.
Verisk internal mileage analysis, 2020
Colin Beresford, “Third-Quarter New-Vehicle Sales Are Encouraging, Hint at Recovery”, Car and Driver, October 2, 2020, Federal Reserve Bank of St. Louis (FRED) and rough overall estimate based on manufacturer sales figures,
< https://www.caranddriver.com/news/a31996377/us-auto-sales-steep-decline-coronavirus-pandemic/ >, accessed on November 4, 2020.
ISO Statistical Plan data, 2020