PPP 2.0 is Here: Should Insurance Companies Follow Suit?

The Paycheck Protection Program (PPP) is back with a second round. These programs offer loans of up to $2 million to companies that continue to pay their employees. PPP is an effort to help small businesses around the country stay afloat.

Early in the pandemic some insurance companies provided relief to their customers. Is it time for them to step up again and provide a second round?

PPP Round 2 Highlights

PPP round 2 will funnel $284 billion of the $900 billion plan into the banks of businesses so that they can continue to pay their employees during this turbulent period of time. There are a lot of great benefits coming out of this package that will be able to assist businesses, and hopefully, keep many of the mom-and-pop stores up and running when the pandemic is over.

A few of the highlights of the program are:

  • Additional funding
  • Funding for businesses that experienced a significant revenue drop in 2020
  • Clarifications on business expense deductions for forgiven loans

In order to qualify, businesses can employ no more than 300 people, have used the first round of PPP, or agree to use the entirety of the second funding round for employee salaries, to fund payroll, rent, utilities and mortgage interest payments. Insurance premiums can also be paid through the program.

While there’s a lot of criteria that need to be met to be eligible for a loan, one is that revenue must be down 25% or more compared to the same quarter a year ago.

Most businesses, over 90% of them, received loans of $50,000 or less, as they try to stay afloat during this unprecedented time. As the second wave of COVID descends on the United States, and as many cities impose strict restrictions on business, there’s a growing question: should insurance companies be doing more?

Insurance Companies Remain Strong and Grew Revenue in 2020

Insurance is a must-have in many states. If you sit behind the wheel of a car, you need to have insurance, and this hasn’t changed due to the pandemic. The problem is that consumers and business owners are struggling to make ends meet, while the insurance companies continue to profit from the pandemic.

Auto Insurers are Benefitting from the Pandemic

The pandemic has led to more people staying home. People are driving less for a variety of reasons. Some people are out of work, others are telecommuting and there’s also the factor that many restaurants and forms of entertainment are closed.

The Bureau of Transportation reports that daily travel took a significant dive in the spring, but there was a rebound in summer.

People were back on the road, but the overall number of miles driven is still well below normal levels. With fewer people on the roadways, there’s also a very positive trend of fewer automobile accidents.

In fact, one report found that the number of auto crashes is significantly lower than in 2019. How much lower?

  • 181,000 less accidents in Colorado, Maryland, Massachusetts and Texas

With the number of accidents down, insurers are paying out less in claims and able to pocket the money. Keep in mind that this figure only accounts for a few states. Insurance companies did offer some breaks to consumers, especially during the initial months of COVID-19, but these breaks ended largely in April and May of 2020.

The same report found that after May, there have been 83,000 fewer accidents than normal.

Fewer Accidents Equates to Higher Profits and Demands for Refunds

Insurance companies set rates based on a number of factors. When there are fewer accidents, they’re able to make more money, but there’s often a reflection in lower premiums passed on to consumers.

While a lot of companies did their part in the early days of the pandemic, they’ve since stopped.

A few of the companies that were stepping up and offering discounts of some form are:

  • Allstate pushed savings on to consumers
  • American Family Insurance pushed savings to consumers

American Family sent consumers a $50 check for each of the vehicles on their policies. Allstate reduced premiums by 15%. But these are just two of the many insurance companies that decided to help out their policyholders.

Many companies didn’t offer any help, and what we’re seeing now is that a lot of companies have experienced significant growth, while many are out of work and businesses are closing. Let’s look at Progressive Insurance and how well they faired.

Progressive Insurance Financial Statements

Progressive released their financial statement to the SEC, as is required, and provides insight into the last nine months, ended 2020. There are a lot of indicators in the report that show Progressive profited greatly from the pandemic.

A few of the key points are:

  • 10% increase in revenue
  • 33% increase in net income before taxes
  • 250% increase in short term investments, clearly indicating of a buildup of cash reserves

Progressive is only one car insurance company, and it’s highly likely that every car insurance company benefitted from fewer people being on roadways.

The question is: when will consumers see savings?

Two groups have already demanded that insurance companies offer refunds to policyholders. While these companies are designed to make profit, they’re one of the only industries that enjoyed much lower risks and higher profits this past year.

PPP loans, while very helpful, are only going to be able to help businesses stay afloat for so long. A lot of businesses may not be able to receive funding, and workers may be unable to maintain the same number of hours or work at all.

The strain of COVID has been far-reaching, and as insurance companies continue to profit, it may be time that they start giving money back to their policyholders: residential and commercial.

nicholas fleming

Nicholas P. Fleming focuses his practice in the area of civil litigation. As a skilled personal injury attorney, he handles a broad range of cases including motor vehicle accidents, premises liability, workplace accidents, and wrongful death. He is licensed to practice by the State Bar of Texas and is a graduate of the South Texas College of Law, earning his J.D. in 2017. Nicholas prides himself on providing personalized service to his clients, who are often facing extremely stressful situations.