Intact predicts two-year hard market in auto

As the number of kilometres driven drops during the pandemic, consumers can expect to get a break on their auto insurance – and expect a hard market to pick up after the pandemic, Intact Financial CEO Charles Brindamour warns.

“We expect rate will pick up and the market will be hard for a good 24 months, with a six to nine month pause as we navigate the worst of the COVID-19 crisis,” Brindamour said during a recent “virtual fireside chat” with Mike Phillips, equity research analyst for property and casualty insurance at investment banking firm Morgan Stanley.

Phillips asked Brindamour how auto insurance pricing is going to change – if at all – once the economy gets back to a state of normalcy.

Shortly after COVID-19 was declared a pandemic March 11, Intact noticed a reduction in miles driven, though usage-based insurance apps, within its own book of business.

In early April, driving was down 50% compared to before the lockdown. But since then it has steadily increased, Brindamour said June 9 during the virtual fireside chit.

As of early June, driving was down about 10 to 20% below what it was before COVID-19, Brinadmour observed.

Intact is among the insurers that are offering rate relief to some of their auto customers. But the pandemic will only have a temporary dampening effect on rate increases, both in personal and commercial auto, Brindamour suggested.

For one thing, the fact that frequency of collisions is dropping does not mean that the total claims costs are dropping at the same rate, said Brindamour.

“The question is, how much less driving will there be in the coming nine to 12 months? And I think a number of people will probably make the assumption that there will be less driving as economies re-open slowly, as work from home is encouraged, and I think that you are likely to see a lower frequency for a good nine to 12 months. Now, at the same time, our perspective is that as the profile of claims changes because frequency drops, you ought to keep an eye on severity.”

Since the pandemic resulted in widespread lockdowns in Canada this past March, Intact has given about 900,000 Canadians close to $280 million in premium relief, Brindamour said. That includes financing relief. So assuming customers who got payment deferrals eventually make their payments, then the total relief will amount to about $240 million to $250 million, Brindamour added.

Phillips asked Brindamour what portion of Intact’s customers getting a75% discount for keeping their vehicles parked.

It’s only a small fraction – of the close to 900,000 Intact customers who are getting some form of relief – that are getting a 75% discount, said Brinadmour. This, he said, is because most people have actually kept driving.

Feature image via iStock.com/tzahiV