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Could car premiums rise post COVID-19 as more people drive to work?

A recent report released by the Kapsch TrafficCom Index suggests that 83 per cent of motorists in Australia will reconsider their public transport use in post COVID-19 world.

There is no doubt that after the Corona restrictions are lifted, public transport could be a less popular option.

How has your behavior changed in response to congestion?
Source: Kapsch TrafficCom Index

Despite images of trains being thoroughly cleaned, the thought of trying to physical distance in a space that has you traditionally nose-to-nose with strangers is unappealing.

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Reducing transmission risk will be top priority for many people. That means more car travel, less public transport.

A recent survey conducted by Capgemini Research Institute found half of consumers in China under the age of 35 will use the public transport system less often and drive their car more often following the pandemic.

That’s more cars and less experienced drivers on the road, which would surely lead to higher premiums being implemented.

Coronavirus impact on new car purchase in China
Source: Ipsos | Impact of Coronavirus to New Car Purchase in China

If the same trend follows in Australia, we could reasonably expect our premiums to be higher.

Post COVID-19, the high cost of public transport ($160 for a monthly Melbourne Myki pass and $179 per month in Sydney for an opal pass) may also determine how people travel if they are unable to afford to travel publicly.

That said, it is incumbent on public transport operators to ensure public safety through social distancing and limiting occupancy on the network. They must also get the message out that public transport remains a viable option.

If nothing else, it’s a branding exercise.

A new dichotomy for road use

The number of licensed vehicles in Australia rose to 19.5 million between 2015-2019. That’s an increase of 1.5 million.

That’s an extra 1-5 million drivers who could be using Australian roads.

It’s an interesting contrast when you consider there has been far less traffic during the lockdown period.

This lack of driving has prompted many motorists to ask why they are paying for car insurance, when they are not using their cars.

Of course fewer cars doesn’t mean lower risks and the insurance companies have been quite generous during this time to suspend payments or lend a helping hand to financially struggling motorists.

So we have a dichotomy: the prediction that there will be more cars on the road versus those who will continue to work from home, (if they can) meaning they stay off the road post lockdown.

How do insurers cater to this?

The questions insurers now need to ask themselves

It could be time for all motor vehicle insurers to make some fundamental changes: to premiums, to general policy standards, to the way they assess drivers and to how they measure usage.

Youi already has a use-based insurance philosophy. We could see other insurers follow suit.

Could we also see kilometre-based policies or premium reductions awarding good behaviour?

More flexible payment options may also have to be considered. The usual monthly or yearly payment plans may not work for people in a post COVID world. For instance, by comparing insurers via the InfoChoice comparison tool, we find that Budget Direct offers fortnightly, monthly and yearly payment options, where AAMI and RACV only offer monthly and yearly options.

In the US there is a move to data driven policies that include use of motion sensor data of a mobile phone to detect precisely when a user is traveling by car, AI to determine exactly who is driving and intelligent driving scores to measure behaviour.

I’d expect to see more use of telematics by Australian motor vehicle insurers in the future as it is an excellent way to implement real-time monitoring of data such as location, speed and use. This gives insurers more accurate data around price risk and could be used by insurance companies to reward drivers with lower premiums if that data indicates safe driving practices.
The face of the insurance industry will change over time to meet the specific needs of customers.
That time may have to come sooner than we think, if more people take to the roads posty pandemic instead of using public transport.

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