Navigating financial services sector performance post-COVID-19: Impact on personal and commercial auto insurance.

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* With people generally driving a lot less due to the pandemic, personal and commercial auto insurance carriers should expect to see a steady decline in premiums written for the next several quarters, and perhaps even for years. But given the lower traffic density, profitability could get a boost since fewer accidents would likely result in fewer claims.

Coronavirus-related shutdowns and restrictions, along with the resulting slowdown in economic activity, led to a year-over-year drop of 40.2% in miles driven by US drivers in April 2020 and 25.5% in May 2020, according to the latest available data from the Federal Highway Administration.56 The Freight Transportation Services Index, an indicator of commercial auto activity, was also down year-over-year by 13.7% in April and 11.9% in May.57

Although reports suggest that driving trends have started to normalize in recent months,58 persistent health concerns, a greater acceptance of remote working, and an ongoing economic slowdown could result in reduced vehicle usage for quite some time.

Our baseline forecasting scenario suggests that a combination of factors prompted by the pandemic could result in a decline of 6.2% in personal auto insurance premiums written, and 3.5% for commercial auto in 2020.

For personal auto, the premium drop could come in the form of refunds or dividends to policyholders, as well as premium discounts upon renewal. Most personal auto carriers returned between 10% and 25% in premiums to customers during March, April, and May to account for the vastly lower number of miles being driven.59 However, these credits are likely short-term in nature and may only impact premiums in quarters two and three of 2020. Premium volume may be restored once carriers complete their COVID-related returns and driving starts to return to normal levels.

If, on the other hand, insurers offer premium discounts going forward on new and renewal policies due to more systemic changes in driving patterns, that could have a longer-term impact on personal auto premium volume. Indeed, our actuarial team anticipates single-digit rate decreases for the next several quarters, which would keep personal auto premiums well below prepandemic levels until 2023.

For commercial auto, meanwhile, premium credits were not nearly as ubiquitous as in personal auto due to the disparate risks of different client businesses.60 Yet an overall decline in commerce due to a pandemic-triggered slowdown in the economy will...