Scrutiny Intensifies Over Auto Insurance Pandemic Refunds

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By John Egan and Jason Metz, FORBES

March 30, 2021

Auto insurance companies have been criticized for their refunds to customers that were based on the reduction in driving (and claims) during the pandemic. Now they’re feeling even more heat over their handling of auto insurance premiums.

In one of the latest salvos, California Insurance Commissioner Ricardo Lara demanded that auto insurers report by April 30 how they plan to issue additional refunds to auto insurance policyholders in California who he says were overcharged in 2020 despite lower accident risks amid the pandemic.

Lara’s order follows the filing of lawsuits in Nevada accusing auto insurers of overcharging policyholders during the pandemic and the ongoing request by consumer advocates for auto insurers to give back even more money to customers.

Carmen Balber, executive director of the California group Consumer Watchdog, says Lara’s action, coupled with the Nevada lawsuits and the continuing noise from consumer groups, could ratchet up pressure on auto insurance companies to send additional refunds to policyholders around the country. She accuses auto insurers of “blatantly ripping off consumers in the middle of a pandemic.”

“Every insurance commissioner in the country has the power to shine a spotlight on the profits auto insurance companies are making in their state and say that consumers are owed more,” Balber says.

Doing The “Right Thing” In California

In a March 11 news release, Lara says the 10 biggest insurers of private passenger vehicles in California offered premium relief ranging from 10% to 22% for March to May 2020. Lara says his pandemic relief order last year saved California drivers more than $1.75 billion. But by December, only four insurers were still offering partial refunds, according to Lara.

An analysis by Lara’s office found:

  • From March to September 2020, the top 10 insurers returned an average of 9% in auto premiums, yet they should have refunded 17% during that period.
  • In California, bodily injury claims fell by 41.7% and property damage liability claims fell by 40.4% from March to September compared with the same period in 2019.
  • Last April, the 10 insurers collected about $220 million more in California premiums than they should have.

“Returning insurance premiums is a stimulus that people need right now,” Lara says in a YouTube video, “and they deserve it as long as they continue to drive less and our roads are safer as a result.”

Bob Hunter, director of insurance at the Consumer Federation of America, says Lara “did the right thing” in seeking more insurance refunds for motorists in California, the country’s largest insurance market.

“They are the only state to heed our repeated calls for data collection to enable accurate paybacks for recent periods. Other states should follow,” Hunter says.

Massachusetts Wants Information on Rates

On the same day that Lara put out his order, the Massachusetts Division of Insurance made a similar move. The regulatory agency said that while auto insurers may continue to offer premium refunds or credits to motorists there, it expects insurers to submit rate filings by June 30 that include data about claims and expenses in 2020.

The division wants to make sure that in setting rates, auto insurers in Massachusetts are taking into account changes in commuting patterns and other pandemic-related shifts in vehicle traffic.

Seeking Relief For Consumers

Hunter’s organization and the Center for Economic Justice note that other than California’s Lara, no other state insurance commissioner has mandated that insurers issue refunds to auto insurance policyholders. Elsewhere, auto insurers voluntarily returned money to their customers.

“I do think that it will be hard for insurance companies to ignore the fact that they’re refunding consumers in California and not elsewhere. It’s not great PR,” says Balber, the Consumer Watchdog leader. “The PR of the situation is definitely a piece of why insurance companies were offering refunds early in the pandemic.”

Since March 2020, the Consumer Federation of America and the Center for Economic Justice have challenged state insurance commissioners to insist that auto insurance companies give up “windfall profits” racked up during the pandemic due to fewer cars on the road, fewer accidents and fewer auto insurance claims. The groups complain that since the outset of the pandemic, U.S. auto insurers have seen claims drop by about $25 billion, yet they have returned less than half that sum to customers.

Similarly, the U.S PIRG Education Fund says a state-by-state survey last year of the 10 largest auto insurers in each state showed only 18 out of 71 companies had returned at least 50% of a one-month premium due to the pandemic. Of those, just eight offered at least a one-month premium refund. Some insurers gave no refunds or credits.

“Insurers should refund the extra profits that come from the reduced driving and accidents due to the pandemic,” says Jacob van Cleef, the U.S. PIRG Education Fund’s consumer watchdog associate. “If they don’t do that, states should mandate that relief. It’s great that people are taking the initiative to sue companies for what consumers deserve, but they should not have to do that. States should act so their citizens don’t have to use their own time and money to get the money they should already have.”

State Farm Responds To California Commissioner

On the same day that Lara said he wants to know how California insurers will provide further refunds, State Farm said it would return $400 million to about 3.5 million auto insurance policyholders in California. The State Farm refunds represent 18% of premiums paid from June 1 to Dec. 31, 2020.

State Farm cited “better than anticipated claim results” for this action, which it says will mean an average check of $100 per private passenger auto insurance policy. The insurance company says those checks will start going out in May. State Farm hasn’t announced similar refunds in other states.

For the period from March 20 to May 31 last year, State Farm says it provided $4.2 billion in pandemic relief to auto insurance customers nationwide, including policyholders in California. Close to half that amount came in the form of refunds (dividends). The other part came from State Farm rate cuts.

State Farm has also filed for rate increases, which will offset some of the previous cuts.

“We continue to monitor driving behaviors to ensure the rates we have in place reflect anticipated driving and claim volume, and to minimize the impact to customers as much as possible,” State Farm spokesperson Angie Harrier says.

One of State Farm’s competitors, Allstate, says it paid about $1 billion in pandemic credits to auto insurance policyholders over a three-month period last year. Most credits amounted to 15% of a customer’s premiums. Furthermore, Allstate is reducing rates in a number of states in response to pandemic-era driving trends. For instance, it’s trimming auto insurance rates by 5.1% in Kentucky and 3% in Louisiana.

Insurance Industry Defends Itself

Reacting to Lara’s recent California directive, the American Property Casualty Insurance Association (APCIA) says auto insurers will supply the requested data to the California Department of Insurance.

“Insurers understood the urgency of helping businesses and individuals recover from the unprecedented crisis caused by the COVID-19 pandemic and took immediate action to adapt premiums when driving was reduced in 2020,” Mark Sektnan, vice president of the trade group, said in a news release. “Insurers continue to work with policyholders to adjust their policies in 2021.”

The APCIA has repeatedly noted that auto insurers provided more than $14 billion in refunds and credits to policyholders in 2020 to reflect reduced traffic during the pandemic. In addition, the group points out that federal data shows traffic deaths rose in the first nine months of 2020, despite the number of vehicle miles driven going down during the pandemic. Sektnan says driving behavior is now “deteriorating at a rapid pace.”

Lawsuits Also Seek Payback

Las Vegas attorney Robert Eglet is taking on 10 auto insurers in court through lawsuits filed in February on behalf of auto insurance policyholders in Nevada. The suits allege that policyholders in Nevada have been overcharged during the pandemic, even though the number of accidents and miles driven has decreased. Eglet anticipates attorneys in other states will pursue similar suits. (The APCIA has accused Eglet of “litigation profiteering” and of twisting data about traffic and auto insurance.)

In Illinois, a proposed class action lawsuit says that the “Geico Giveback” program violated the state’s consumer fraud law.

Regardless of whether other lawsuits come about, Eglet expects auto insurers to keep facing criticism about their “inappropriate actions” and the billions in dollars of “windfall profits” they’ve reaped at the expense of policyholders.

“They should be ashamed of themselves for taking advantage of their customers in this way,” Eglet says, “and not doing their part to help their customers meet financial needs during this pandemic.”

Consumer Watchdog
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