Washington’s political gridlock has introduced new risk to car insurance providers that actuaries could not have anticipated. The issue is two pronged. As millions of federal workers go without pay, states are calling for insurance companies to provide relief to federal employees. At the same time, flight interruptions across the country are anticipated to increase the number of drivers on the road during the Thanksgiving holiday, which is likely to increase claims.
Revenue Delays
As the shutdown extends, insurance commissioners in multiple states, including California, Colorado, and Kentucky are intervening to protect furloughed consumers. In particular, California is requesting that insurance companies provide the following measures:
- Grace Periods: Postponing or withdrawing any previous notice of cancellation or non-renewal issued after October 1 due to non-payment of premiums. The notice requests that insurance companies maintain coverage in cases of unpaid premium for at least 30 days or for the duration of the federal shutdown, whichever is longer.
- Waiver of Late Fees and Penalties: Eliminating late fees and penalties associated with late payments.
- Extension of Claims and Underwriting Deadlines: This includes extending deadlines for submitting sworn proof of loss or other claim forms, conducting examinations under oath, medical examinations, physical inspections of insured property, and meeting required repairs to comply with underwriting guidelines, among others.
Because insurance companies make interest on premiums, unexpected delays reduce the income that car insurance companies have available.
Expected Increase in Claims
The Federal Aviation Administration (FAA) has ordered airlines to cut their schedules citing safety concerns amid a record-long government shutdown. This unprecedented move, which includes a 10% flight reduction at 40 of the nation’s busiest airports, is a direct response to staffing shortages as thousands of air traffic controllers and TSA agents work unpaid.
Airlines like United, Delta, and Southwest have already begun canceling hundreds of flights today to comply with the order. The result is a cascading failure of the air travel network, forcing millions of holiday travelers to find another way home, and they are overwhelmingly choosing their cars.
The results are already clear. Hertz has reported a 20% increase in auto rentals. As millions of Thanksgiving travel plans are thrown into chaos, travelers are abandoning the uncertainty of airport lines and potential last-minute cancellations in favor of the relative reliability of the road. Other ground carriers, like Amtrak and Greyhound, are also anticipating a significant increase in demand.
This mass migration to the roads is set to collide with what is already one of the most dangerous travel periods of the year.
The National Safety Council typically projects that more than 500 people die in preventable traffic accidents during the Thanksgiving holiday period. That baseline estimate is based on normal travel patterns, which typically see over 50 million Americans traveling 50 miles or more, mostly by car.
The 2025 holiday, however, is slated to be one of a kind. The influx of millions of additional drivers dramatically increases the risk profile. This concentration of factors is a proven recipe for a spike in collisions:
- “Blackout Wednesday”: The night before Thanksgiving is notoriously one of the biggest nights for alcohol consumption, leading to a sharp increase in impaired driving incidents.
- Increased Gridlock: A 30%+ surge in traffic volume, as seen in previous holidays, leads directly to more rear-end collisions and multi-vehicle pile-ups.
- Driver Fatigue: Travelers attempting to cover long distances by car instead of a 3-hour flight are more likely to drive while drowsy.
The sudden, forced migration of millions of travelers from air to road represents a significant unmodeled risk.
Overall Strain
For the nation’s auto insurers, this chain of events poses an acute financial and logistical challenge. The core of their business model is built on statistical modeling of revenue and cost, and the shutdown disrupts both.
