Auto Insurers Reap Billions in COVID Windfall Profits
Regulators Urged to Provide Relief & Re-rate Policyholders
New evidence confirms that auto insurers have reaped tens of billions in windfall profits due to the reduction in crashes and miles driven during the Coronavirus pandemic, as Consumer Federation of America (CFA) and Center for Economic Justice (CEJ) predicted earlier this year. In a letter to state Insurance Commissioners sent last month, CFA and CEJ took the regulators to task for failing to prevent windfall auto insurer profits as auto claims dropped.
Over the past nine months, CFA and CEJ have collected and analyzed crash data from Texas and Massachusetts and provided updates in several letters to Commissioners urging givebacks for consumers because of the COVID-19 pandemic and its impact on driving. The most recent statistics from July 2020 indicate that crashes remain between 14% and 20% below their 2019 level in Texas, and between 32% and 40% below normal in Massachusetts.
While regulators in four states — California, Michigan, New Jersey, and New Mexico — initially ordered refunds for consumers, only California has mandated ongoing premium relief.
The result of that inaction can be seen on auto insurers’ bottom lines. Progressive recently reported a 177% increase in monthly profits over August 2019, and noted that its losses were substantially lower than usual due to the pandemic and various measures to combat it. Similarly, GEICO reported $2.1 billion in second quarter 2020 earnings before income taxes compared with just $393 million in the second quarter of 2019, again due to fewer car crashes and reduced claims.
“The facts make clear that the inaction by most state Insurance Commissioners to assure refunds are adequate has lined the auto insurers’ pockets at the expense of American consumers,” said CFA Director of Insurance J. Robert Hunter. “The overwhelming need for Insurance Commissioners, who are charged with ensuring rates are not excessive, is to direct insurers to provide the appropriate premium relief from mid-March to the present, and this need continues. Consumers will require premium relief into the future as long as the pandemic depresses vehicle miles traveled and accident claims.”
In the letter CFA sent to Insurance Commissioners late last month, Hunter and CFA Insurance Expert Doug Heller highlighted these excessive windfall profits as well as the significant changes American families have experienced in how often they are driving and number of crashes. Hunter and Heller also noted that this change in driving habits may be here to stay for the foreseeable future.
“Though driving has risen since the spring, vehicle miles and accidents remain well below the levels that were used to establish the in-effect rates for most companies. We expect this to be the case for the foreseeable future,” they wrote. “Millions are out of work and millions more are working from home. According to J.D. Power, 59% of auto insurance customers believe that they will be driving less in the future.”
Due to these substantial changes, Hunter and Heller called on Commissioners to not only provide premium relief, but also to re-rate policyholders to reflect their new driving habits.
“When we first called for refunds in March, insurers scoffed at the idea, but they eventually ended up giving back about $8.5 billion to customers. We consider that a down payment on what is due to American customers, but getting the rest is going to require state Insurance Commissioners to be more actively involved in protecting policyholders,” stated Heller.