Consumers Deserve A Second Round of Auto Insurance Premium Refunds

The COVID-19 pandemic is still raging, and states are re-imposing restrictions and closing businesses to prevent health care systems from being overwhelmed. This will have a big impact on auto insurance. More stay at home orders and shutdowns mean that consumers are going to be overcharged for auto insurance unless state Insurance Departments act.

What is going on? The pandemic and the resulting economic downturn mean that tens of millions of Americans are staying home more and driving less. Vehicle miles traveled is way down, which in turn means that auto crashes are well below normal, and that means insurance claims that companies have to pay out are well below normal. As a result, auto insurers are raking in huge profits just because Americans are staying home and paying auto insurance rates based on pre pandemic data.

In spring 2020, Consumer Federation of America (CFA) quickly realized this problem and organized public pressure on the companies, demanding they give back premium refunds to consumers. In response, auto insurers gave way and sent an average of 15% of premiums back to consumers. Most insurers only provided this relief for a couple of months.

While these refunds were better than nothing, they were inadequate for consumers still struggling through the pandemic and associated economic challenges.

CFA analyzed data and issued a report showing that consumers needed a minimum average 30% premium relief payment from March 18, 2020 through May 2020 to offset the decline in driving, crashes, and claims.

Since then, the situation has not changed. Driving and crashes have increased from the lowest point in April and May 2020, but they are still well below normal. Recently acquired statistics from Colorado, Maryland, Massachusetts, and Texas show over 181,000 fewer accidents in those four states during 2020 compared to 2019. Accidents are down 31% since the beginning of the pandemic.

This massive decline in accidents came at a time when auto insurers were still earning huge profits, even after their insufficient refunds. Just a few examples: Progressive reported $1.5 billion in earnings and $10.9 billion in revenue during the third quarter of 2020, up 83% from $835 million in earnings for the third quarter of 2019. And Berkshire Hathaway, which owns GEICO, earned $30.1 billion in the third quarter of 2020, up from $16.5 billion in 2019. Finally, Allstate’s revenue grew 16.9% to $484 million in the third quarter of 2020. Its adjusted net income of $40 million was an increase of $32 million compared to the third quarter of 2019. Additionally, Allstate’s underlying loss ratio improved 7.8 points, mostly due to lower auto insurance losses due to fewer miles driven and fewer crashes.

After the initial premium refunds in the spring, almost all auto insurers have stopped the givebacks and are keeping the enormous profits for themselves. There are a few exceptions: American Family announced 10% refunds for consumers from July 2020 through the end of March 2021, Amice gave back 10% refunds through October 2020, and NJ Manufacturers gave back 15% for July and August 2020. But aside from that, insurers have discontinued the refunds, even though crashes are down and consumers are struggling.

And the response of State Insurance Departments? Most of them have fallen down on the job. Only the California Insurance Department has required that auto insurance premium refunds be provided to consumers after the initial spring months. Their actions should serve as a model for other Insurance Commissioners.

Moreover, states and cities are passing all kinds of restrictions to reduce cases of COVID-19, which will cause driving, crashes, and claims to further decline. Just over a week ago Pennsylvania ordered a ban on indoor dining at restaurants and new size limits on gatherings, Virginia implemented a modified stay at home order, and Oklahoma limited public gatherings to 50% capacity.

What can consumers do to change this? Pressure auto insurers and state Insurance Commissioners. If you haven’t already, call your auto insurer, explain that you are driving significantly less because of the pandemic, and demand a lower insurance rate. You can also reach out to your Insurance Department, explain that driving and crashes have declined, and urge them to require auto insurers to provide an additional 15% premium refund for all consumers.

As the nation continues the transition to the incoming Biden Administration, economic impacts brought on by the pandemic, such as excessive auto insurance premiums, will likely be of high importance. President-Elect Biden has already signaled that a coronavirus relief bill will be an objective on day one of the new administration. CFA urges the Biden administration to:

· Encourage states to mandate auto insurance premium refunds for all consumers,

· Gather information and issue recommendations for better regulation and oversight of auto insurance,

· And develop guidelines for ending systemic racism and discrimination in auto insurance markets.

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

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