Multimilliondollar mistake

BUSINESS

When Virginia's biggest auto insurer found errors in a 432-page filing with the State Corporation Commission's Bureau of Insurance, it told regulators — and eventually paid $2.5 million in restitution to more than 91,000 Virginians.

State Farm is reimbursing nearly three-quarters of holders of personal auto insurance policies for 2022 model vehicles because a filing updating coverage for them included information it hadn't used before in Virginia. State Farm has about 16% of the market, insuring 8 million-plus cars and trucks in Virginia, and collects about $1.4 billion in premiums here each year.

"When we identified this unintentional error, we promptly reported it to the regulator and worked quickly to resolve it for the benefit of our customers," the company told the Richmond Times-Dispatch.

When it caught the errors shortly after sending the update to the bureau, State Farm filed a new form with the usual symbols it uses in Virginia to detail coverage.

But in the interim, it had issued policies and set premiums, using the unapproved material: basically, the numbers and letters that tell underwriters how likely it is that a vehicle will be stolen or damaged in a collision and how costly the fix will be.

Using those unapproved symbols meant 91,686 policyholders were overcharged, the bureau found.

They're getting an average of $27.55 back, under a State Farm settlement with the bureau.

The restitution is among the largest through a bureau settlement in recent years.

That it came as a result of something an insurer found is not something settlements of similar alleged violations usually report.

Virginia has a "file and use" approach to auto insurance, which means that insurers can charge the rates and use terms they file before the bureau can formally approve them.

Updates, for instance, to detail coverage for a new model year of vehicles, are supposed to use material that an insurer has already filed.

When the bureau reviews auto insurers' rate and terms filings, it looks at whether rates and terms are fair to policyholders and whether they'll leave insurers with enough financial resources to honor their promises to pay claims.

Oversight continues after approval, too.

Bureau staff can dig into company records to see if policies actually issued track terms and prices the bureau had previously reviewed, as well as how companies meet their promises in handling claims.

The bureau's staff does this with regular market conduct examinations, which are detailed audits that can take years. They also do more focused reviews in response to complaints or trends they see in Virginia's auto insurance marketplace.

The bureau also examines insurers' financial results to make sure they have the resources necessary to meet their promises to pay claims. If not, a firm is not allowed to sell insurance in the state.