Consumers are Paying Outrageous Premiums & Rates, Despite Driving Less due to COVID-19

State Insurance Commissioners Should Stop This!

By: Michael DeLong, CFA Insurance Advocate

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Ever since the COVID-19 pandemic hit and states issued stay at home orders and closures, Americans have been driving less. As businesses and venues closed, driving declined as consumers remained at home, leading to fewer crashes and fewer insurance claims paid out. While driving has increased from its lowest levels in the spring, it is still substantially below normal.

Why is this important? Because, with Americans driving less and fewer crashes reported, auto insurance companies are reaping an enormous windfall profits that they did nothing to earn.

Over the past months, Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ) have monitored and analyzed crash data from several states’ Departments of Transportation. In Texas and Massachusetts, car crashes declined sharply in the spring due to the pandemic and various stay-at-home orders. Since then, they have risen somewhat, but in both states crashes are still between about 12% and 50% below their normal levels, which is well outside of the range of any normal fluctuation and clearly indicates that drivers’ premiums remain excessive.

For example, Progressive Insurance reported an 83% increase in their net income during the second quarter of 2020 (March-June) due to COVID-19. They made $811 million! All across America, consumers are paying excessive rates and premiums based on their pre-pandemic driving behavior. Another example is GEICO, which earned $2.1 billion in the second quarter of 2020 due to a steep decline in losses because fewer people were driving. But at the same time, GEICO refused to automatically give back refunds to consumers. Instead, consumers only received a 15% refund when they renewed their policy with GEICO.

“We see substantial declines in vehicle miles traveled and car crashes all across the country, and auto insurers have reaped a massive windfall they did nothing to earn,” said Doug Heller, CFA Insurance Expert. “Back in the spring, when stay at home orders started being issued, CFA realized this would be a huge problem and that consumers would be paying much higher premiums and rates based on outdated assumptions.”

CFA began organizing public pressure on auto insurers, demanding that they give back their excessive profits in the form of refunds to their customers. After at first trying to avoid this, most auto insurers caved and gave back around 15% of premiums to consumers for the months of April and May-a significant victory for consumers, especially since tens of millions of people are struggling during this difficult time.

But the crisis is far from over. And while insurers returned some of their profits, they earned so much due to the pandemic that their givebacks should have been 30% of their premiums or more. Driving has declined from its usual levels, and while some auto insurers — among them Allstate and USAA — have agreed to give back premiums for June or even later, most have not.

CFA is urging insurance commissioners, who oversee and regulate insurance in their various states, to require that auto insurers give back premium refunds to consumers. At this point only California, Michigan, New Jersey, and New Mexico have required these refunds.

So, what are some steps that consumers can take?

1. Call your auto insurance company and ask for an additional premium refund. If you have substantially reduced your driving, demand to have your insurance premium lowered. Explain that as a result of the COVID-19 pandemic, you are driving significantly less than normal and that should be reflected in your rates.

2. Shop around for more affordable auto insurance. It is quite possible that you can get better deals from another company, and take their refunds into account. For example, some auto insurers are lowering their overall rates over the next several months due to the pandemic’s impact, while others have refused to give back any refunds at all!

3. Contact your state insurance commissioner and urge them to require auto insurance premium refunds. Most insurance commissioners have broad authority to investigate, modify, or reject insurance rates that they find excessive or unfairly discriminatory. But they need to hear from you.

Consumer Federation of America (CFA) is a non-profit organization advancing the consumer interest through research, advocacy, and education.

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