Drivers Overcharged During Pandemic, State Insurance Regulator Says

California action may spur other states to demand more premium refunds

Millions of drivers could pocket additional auto insurance refunds as a result of a recent order by California’s insurance commissioner that requires insurers to pay back a greater portion of their pandemic-related windfall profits. The move is expected to put pressure on other states to act, as well—heeding a call that consumer groups have pushed for since the pandemic began.

Key Takeaways

  • California’s largest auto insurers owe customers more premium relief, according to the state’s insurance commissioner.
  • Consumer groups have asked for such relief nationwide since the pandemic began, as reduced driving led to fewer claims.
  • A major national trade association for auto insurers says they will continue to work with policyholders to adjust policy costs this year.

What California Regulators Found

Auto insurers skimped on the refunds to California drivers that the state’s insurance department ordered last year as miles driven and accident claims plunged during the pandemic shutdown, according to Ricardo Lara, California’s insurance commissioner.

A review of data submitted by the state’s top 10 auto insurers found they returned on average 9% of auto premiums from March to September 2020. But the commissioner’s analysis, released last week, indicates that they should have refunded nearly double that amount, or 17%. And by December, only four insurers were still offering any partial refunds, despite the continuing pandemic. 

Lara ordered each insurance company to report by April 30 how it will return the funds he says are owed to policyholders. Among the first industry actions taken: State Farm announced it will return $400 million to its 3.5 million California auto policyholders in May, representing 18% of the premiums they paid for the second half of last year. Customers will receive about $100 per policy, on average, State Farm says.

Consumer Groups Press for More Action

Since March 2020, the Consumer Federation of America (CFA) and Center for Economic Justice have petitioned state insurance regulators for this scope of action. In December, the groups repeated the push—urging them "to require all auto insurers to issue a second round of premium refunds for consumers."

The groups calculated that since the pandemic began, auto insurers nationwide experienced about $25 billion less in claims. But premium relief from insurers amounted to half of that, or less. Meanwhile, policyholders paid excessive premiums based on outdated estimates of miles driven, the CFA says.

"The fact that Californians are getting the refunds they deserve highlights the inadequacy of other regulators’ responses to the pandemic to date," CFA insurance expert Douglas Heller told Investopedia.

The Nationwide Picture

Overall, insurance discounts, rebates, and policyholder dividends amounted to more than $14 billion nationally in 2020, according to the Insurance Information Institute (III), an industry-sponsored group. At the same time, 2020 auto insurance premium rates fell nationally for the first time in a decade, and III chief actuary James Lynch says many insurers have built these discounts into this year’s premium rates. 

Last spring, insurance relief typically trimmed 15% to 25% off customers’ premium payments for one or more months, according to a 2020 report by the National Association of Insurance Commissioners that tracked COVID-19 response.

A state-by-state analysis of insurers’ rebates, credits, and rate changes released in December by the U.S. Public Interest Research Group (PIRG) Education Fund found most insurers returned no more than half of one month’s premium.

While some companies automatically issued credits, two-month rebates, or rate cuts, in some cases, customers didn’t get a refund or rate cut unless they called and asked for one, PIRG added.

What Policyholders Can Do

In response to California’s directive, the American Property Casualty Insurance Association (APCIA) issued a statement saying that insurers are continuing to work with customers to adjust their auto policy costs in 2021.

"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, APCIA’s vice president, said in a press release. "Policyholders are encouraged to communicate any reduction in their driving habits to their insurer to discuss adjustments in premiums if those changes haven’t already happened automatically."

Article Sources
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  1. California Department of Insurance. "Commissioner Lara Finds Auto Insurance Companies Overcharged Drivers as Accidents Plummeted During the Pandemic." Accessed March 19, 2021.

  2. State Farm. "State Farm Returning $400 Million Dividend to California Auto Customers."

  3. Consumer Federation of America. "Extremely High Insurer Profits and New Accident Data Show That Auto Insurance Companies Need to Provide More Pandemic Refunds."

  4. Insurance Information Institute. "The Real Story on Auto Insurance During the Pandemic."

  5. National Association of Insurance Commissioners. "NAIC COVID-19 Report for 2020."

  6. U.S. PIRG Education Fund. "Did Your Auto Insurance Company Refund You Enough for Driving Less This Year?"

  7. American Property Casualty Insurance Association. "Insurers Already Deploying Policyholder Relief."