California Presses Auto Insurers To Give Rebates; What About Other States?

The insurance industry overcharged California drivers by hundreds of millions of dollars in past year amid less driving and accidents, Insurance Commissioner Ricardo Lara said.

Lara ordered a refund plan by April 30.

Last April, as Californians stayed off the roads in response to public health “stay-at-home” orders, Lara ordered auto insurance companies to return a percentage of paid premiums. Drivers collectively saved more than $1.75 billion in 2020 as a result, he said.

After a systematic review of data submitted by insurance companies — the only such review in the country, Lara said — the state found that insurance companies "continued to overcharge consumers despite drastically reduced risk of accidents and loss due to the ongoing pandemic," Lara said in a news release.

Lara also directed commercial insurance companies to provide data about commercial policies held by California businesses, which could lead to additional savings for small businesses that are struggling to survive due to the pandemic.

“My order saved California drivers more than $1.75 billion last year — the most in the nation. But while millions of us stayed home helping to fight the spread of the virus and reducing the risk of accidents for our essential workers, insurance companies continued to collect inflated premiums,” Lara said. “The bottom line: Insurance companies overcharged consumers and need to do more to make it right and help Californians recover.”

The commissioner’s review included the top 10 insurance groups representing 80 percent of the private passenger automobile insurance market. It found:

1. Over seven months from March to September, insurance company groups returned on average 9% of auto premiums, but the Department’s analysis found they should have refunded nearly double that amount —17% — over the seven-month period.
2. Bodily injury claims fell by 41.7% and property damage liability claims fell by 40.4% during March to September 2020, compared to the same period in 2019.
3. For April 2020, the first full month of the statewide “stay-at-home” order, the gap between the refund indicated by insurance company group data and the premium they actually returned was approximately 13% — representing about $220 million in excess premium collected by insurance companies for that month alone.
4. All of the top 10 private passenger insurance groups offered premium relief ranging from 10% to 22% for the months of March to May. However, by December, only four insurance groups were still offering any partial refunds, despite the continuing pandemic and a multitude of counties still remaining in the purple tier, or “most restrictive” tier.

Lara’s orders included commercial insurance coverage and he announced that he is seeking detailed data about commercial insurance losses dating back to last March.

“We know that for business owners, any savings matters while they are desperately trying to keep their doors open,” he said. “If the data shows that insurance companies overcharged our businesses, I am going to be mandating them to return premium, especially to small business that have borne the brunt of pandemic closures.”

What About Other States?

The Consumer Federation of America (CFA) and Center for Economic Justice (CEJ) praised California's actions and questioned why other states are tracking insurers' pandemic claims.

“Since March 2020, consumers have been driving much less than they were before the COVID-19 pandemic, and that is still true today. As a result, crashes and claims are well below normal, which means massive insurer profits,” said J. Robert Hunter, CFA’s director of insurance and a former Texas insurance commissioner. “Commissioner Lara’s announcement is most welcome and will result in additional money being returned to California drivers. Other Insurance Commissioners should be ashamed that they have done so little; they should follow suit and stand up for the residents of their states."

CFA and CEJ put regulators on notice in March 2020 of impending windfall profits for auto insurers due to dramatically reduced driving, fewer cars on the road, fewer accidents, and fewer auto insurance claims.

The groups repeatedly pressed commissioners to require insurers to give up COVID windfall profits and return premium to consumers. The groups calculate that since the pandemic began, auto insurers nationwide have seen about $25 billion in fewer claims, while the premium relief from insurers has been half or less than that.

In addition, miles driven, cars on the road and auto claim frequency are still down from pre-pandemic levels as more businesses have decided to move workers from offices to working from home.