By Heather A. Turner, PROPERTY CASUALTY 360
August 4, 2021
Despite a dramatic driving slump and insurance premiums refunds issued during the early months of the COVID-19 pandemic in 2020, California auto insurance companies continued to charge pre-pandemic rates to the state’s drivers, a Consumer Watchdoganalysis found.
The analysis concluded that insurers inadequately reduced rates accordingly with decreased accident claims, resulting in carriers overcharging California motorists by about $5.5 billion last year.
The calculation is based on profit and loss data compiled from insurers’ annual statements by the California Department of Insurance and the National Association of Insurance Commissioners. The nonprofit found that California auto insurance company loss ratios averaged 52.7 cents for every premium dollar charged in 2020 — down 11.8% from 2019. Consumer Watchdog then evaluated the difference between the premiums insurers collected in 2020 and what they should have collected to be consistent with 2019 loss ratios.
Auto insurers face criticism
In March 2021, Insurance Commissioner Ricardo Lara set an April 30 deadline for auto carriers to repay outstanding 2020 refunds. He said in a statement, “The bottom line: Insurance companies overcharged consumers and need to do more to make it right and help Californians recover.” However, insurers were allowed to calculate for themselves what they owe. As a result, according to Consumer Watchdog, the top 15 auto insurance companies in the state have only repaid consumers about $1.9 billion for 2020, less than half of what they overcharged.
“Asking insurers to calculate their own refunds hasn’t resulted in consumers getting what they’re owed,” said Carmen Balber, executive director of Consumer Watchdog, in a release. “Insurance companies are hanging on to billions of drivers’ dollars that should be helping Californians get back on their feet as we emerge from the pandemic. The Insurance Commissioner must require companies to refund past overcharges in full, with interest, and make sure rates are not excessive going forward.”
Auto insurers have faced harsh criticism for their pandemic “relief refunds” that many believed were insufficient to assist struggling consumers.
In August 2020, lawsuits filed in Illinois against Allstate, Geico, Progressive, Travelers and others, alleged the insurers offered “woefully inadequate“ COVID-19 auto insurance discounts and unfairly profited from high rates. Since then, lawsuits against 10 insurers have also been filed in Nevada.
In a February 2021 release, Stef Zielezienski, executive vice president and chief legal officer at the American Property Casualty Insurance Association, responded to the then-newly filed Nevada litigation with the statement: “Litigation profiteering is a direct threat to long-term economic recovery. The insurance industry is working to rebuild communities and yet this type of lawsuit abuse has the opposite effect. Insurers understood the urgency of helping businesses and individuals recover from the unprecedented crisis caused by the COVID-19 pandemic. Insurers are committed to serving policyholders during this difficult time and will continue to adapt claims handling procedures to meet the new virtual needs required to pay claims quickly and efficiently. Policyholders are encouraged to communicate any reduction in their driving habits to their insurer to discuss adjustments in premiums if those changes have not happened automatically.”
Heather A. Turner is the managing editor of ALM's NU Property & Casualty Group. She can be reached at [email protected].