In Depth

Should car insurers offer refunds during lockdown?

Fewer claims being made as drivers stay at home

The coronavirus lockdown order has left drivers and their families stuck at home, with vehicles parked and unused.

And with roads far less busy, fewer accidents are occurring, which means fewer claims - resulting in big savings for insurance companies.

Indeed, insurers’ profits are soaring just as many other members of the population are feeling the economic cost of the Covid-19 pandemic.

Unsurprisingly, calls are increasing for a form of refund for insurance customers.

In a letter to Rishi Sunak last weekend, a 27-strong cross-party group of MPs urged the chancellor to “take action to ensure that UK car insurance companies repay some, or where appropriate all, of premiums to customers”.

“Car insurers have reported an almost 50% drop in claims during lockdown,” the letter said. “Furthermore, the UK government has stated that driving is down by 75% as a result of lockdown. Accordingly, it has been calculated that insurers are set to make £1bn profit from all of the motorists who cannot drive right now.”

The MPs argue that UK insurers should follow the lead set by their counterparts in the US, where 82% of car insurers have announced they will be refunding or crediting drivers a total of more than $6.5bn over the next two months, according to a recent report from the Consumer Federation of America.

However, as Forbes notes, the UK government “may be reluctant to intervene in a commercially sensitive market such as car insurance, especially given the complexity of achieving an equitable solution embracing numerous providers and over 25 million drivers”.

Fortunately for some UK drivers, at least one major insurer has responded to the demands without government intervention.

Admiral this week became the first UK car insurance company to offer a direct refund to its customers - a £25 rebate for the 4.4 million cars and vans it covered as of 20 April, amounting to a total £110m return to policyholders.

“We want to give the money we would have used to pay claims back to our loyal customers in this difficult time. We have also already reflected this change in driving behaviour in our pricing for customers and will continue to do so,” said Cristina Nestares, the chief executive of UK insurance at Admiral.

The Guardian reports: “Admiral has pledged a further £80m, mainly to reduce prices, with the biggest cuts to benefit renewing customers with above-average premiums, such as younger drivers. Some of the money will go towards measures to support NHS staff, as well as a £4m Covid-19 support fund in south Wales, where Admiral is based.”

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The BBC adds that other insurers are now “under pressure to follow suit”.

Gareth Shaw, head of money at Which?, said: “People will remember how businesses treated them during this crisis, and Admiral’s decision to provide partial refunds to all of its car and van policyholders will certainly be welcomed by customers experiencing unforeseen pressure on their finances. Firms that act fairly now may see that they are rewarded in the future, and we encourage all other car insurers to follow Admiral’s lead.”

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