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Auto sales, auto insurance could benefit from tax refunds, stimulus checks.

Auto Insurance Sales Reflect Uptick in Vehicle Demand

Whether auto-insurance sales by the subprime segment continue to lag may become more obvious in the coming weeks, depending on whether the insurance industry sees the usual uptick due to tax-refund season, TransUnion’s David Drotos says.

Auto-insurance shopping picked up overall in November and December of 2020, in parallel with a general increase in business activity and auto sales, but customers with the highest-risk credit were an exception and they are likely to continue to lag in 2021, according to a TransUnion study.

The study says the economic recovery “may remain a challenge for this particular group” in 2021. Auto-insurance sales are a good indicator of demand for autos, says David Drotos, vice president-insurance solutions at TransUnion, in a phone interview.

Whether the subprime segment continues to lag may become more obvious in the coming weeks, depending on whether the insurance industry sees the usual uptick due to tax-refund season, Drotos says.

Government stimulus checks could also boost auto insurance sales, he says.

Customers with a tax refund have more cash in hand. In subprime auto loans, tax-refund season is usually the high point of the year because for borrowers with subprime credit, it may be their best opportunity to produce a down payment on a car or truck.

Business also usually picks up in auto insurance, Drotos says. But in auto insurance, he says business also improves during tax-refund season for consumers with good credit histories, too.

Meanwhile, tax refunds are off to a slow start this year, according to the Internal Revenue Service.

For the week ending March 5, the IRS reported the number of refunds was down 26.4%, to 34.5 million. In addition, the average tax refund was down slightly vs. the comparable period a year ago, to $2,990, down $22 or 0.7%.

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