COVID-19: Allstate, Geico, American Family Insurance to give over $3 billion back to drivers stuck at home

Warren Buffett’s Geico plans to offer insurance-policy credits to its auto customers as driving declines because of the widespread coronavirus-related shutdowns.

Geico, owned by Buffett’s Berkshire Hathaway Inc., will provide a 15% credit to its auto and motorcycle customers when their policies come up for renewal between April 8 and Oct. 7, the insurer said in a statement Tuesday. That translates to a total benefit to consumers of about $2.5 billion, the company estimates.

The announcement follows similar moves by rivals Allstate Corp. and American Family Insurance, which are returning money to customers. Allstate Chief Executive Officer Tom Wilson said there’s been a roughly 35% to 50% decline in driving in most states, a drop that could translate into fewer accidents that the auto insurer would have to cover. Earlier Tuesday, Liberty Mutual Insurance announced plans to give customers refunds totaling about $250 million.

Geico’s credits will also apply to new policies purchased from early April to early October. The insurer said that the shutdowns tied to the spread of Covid-19 have cut down on customers’ driving, with a bounce-back expected once the virus’s spread subsides.

“This ongoing crisis has widespread effects that will linger,” Geico CEO Todd Combs said in the statement. “That is why we wanted to give this credit for at least six months.”

On Monday, Allstate and American Family Insurance said they would give their personal auto insurance customers a break, since most of them aren’t driving as much as they did a month or two ago.

Allstate expects to give back more than $600 million, with personal auto customers receiving 15% of their monthly premium in April and May, according to a statement Monday. American Family Insurance said it plans to return about $200 million to its auto-insurance customers through a one-time payment of $50 per covered vehicle.

“Given an unprecedented decline in driving, customers will receive a shelter-in-place payback of more than $600 million over the next two months,” Allstate Chief Executive Officer Tom Wilson said in his company’s statement. “This is fair because less driving means fewer accidents.”

States across the U.S. have issued stay-at-home mandates to help slow the spread of the deadly coronavirus. That’s led to a decline of about 35% to 50% in driving in most states, Wilson said.

“We started with one week of data and we sat down and said, ‘OK, what do we do about this?’ It’s one week of data. We don’t normally price on one week of data,” Wilson said on a media conference call Monday. “In about a week and half, we pulled this off. There was not one debate in our company about whether we should do this or not.”

Income cuts all around

Allstate said its first-quarter underwriting income will be cut by about $210 million before taxes because of the payback to holders of 18 million policies, with the remainder of the payback to be recognized in the second quarter. The company is also offering free identity protection for the rest of the year and payment relief for struggling customers.

“Allstate’s Shelter-in-Place Payback program, announced in a filing April 6, will reduce 1Q consensus EPS by about 16% and will also affect 2Q; still, fairly low 1Q catastrophe costs and a decrease in auto traffic nationwide may have offsetting effects.”, said Matthew Palazola, senior industry analyst, and Derek Han, associate analyst.

“We think it is positive that Allstate took a proactive step to refund customers,” David Motemaden, an analyst at Evercore ISI, said in a note to clients Monday. “In addition to a good marketing opportunity, it likely also improves Allstate’s relationship with state regulators.”

Rival Progressive Corp., which said it won’t cancel policies for non-payment through May 15, is exploring how to best return some premiums to customers and expects any plans to be in place soon, according to an emailed statement from a spokesman.

The insurance industry has faced growing pressure from some policyholders and lawmakers to cover business interruption costs tied to the pandemic despite the fact that some experts have warned that many policies wouldn’t cover virus-related losses. While Allstate doesn’t have large business-interruption exposure, Wilson said that the country needs to build more resiliency around pandemic-related risks, but shouldn’t force the industry to pay for losses that it specifically hadn’t planned to cover.

“The way to have dealt with this was to have built a resilient set of financial protections around a pandemic before we got into it as opposed to trying to do it in the rear-view mirror,” Wilson said. “I don’t believe that we should expand contracts and make people pay for stuff, even if it’s only temporarily.”