Insurers Return Premiums Amidst Pandemic

During the COVID-19 pandemic, many people were forced to stay at home, meaning that roads were less congested and there were fewer accidents. Despite this, auto insurance companies continued to charge high premiums. In response, insurance commissioners in some states, such as California, ordered insurance companies to return a percentage of premiums to their customers, providing financial relief during a challenging time. In total, auto insurance companies returned around $14 billion to their customers in 2020, with companies like Allstate and Geico giving back over $600 million and $2.5 billion, respectively. However, consumer advocates argued that these amounts were not enough, and some drivers even filed class-action lawsuits against insurance companies, claiming that they were overcharged.

Insurance companies overcharged drivers during the pandemic

In California, Insurance Commissioner Ricardo Lara ordered auto insurance companies to return a percentage of paid premiums, saving drivers more than $1.75 billion in 2020. Lara's review of the top 10 insurance groups representing 80% of the private passenger automobile insurance market found that insurance companies should have refunded nearly double the amount they did over a seven-month period. The gap between the refund indicated by company data and the premium returned was about 13% for April 2020, representing $220 million in excess premiums collected.

The overcharging of consumers by insurance companies during the pandemic has been described as "unfairly discriminatory" and a failure to "reflect their present-day risk of accident or loss". Consumer advocates have applauded the move to return premiums but also stated that the amounts were not enough. It is hoped that this will be the beginning of a reckoning for car insurance companies, leading to premiums being returned to drivers across the board.

In addition to California, there have been class-action lawsuits in Nevada against insurance companies such as Geico, State Farm, and Progressive, alleging that the refunds issued did not constitute "fair or meaningful relief". The outcome of these lawsuits remains to be seen, but they bring attention to the issue of insurance companies overcharging drivers during the pandemic.

Refunds for drivers and businesses affected by the COVID-19 emergency

Insurance Commissioner Ricardo Lara ordered insurance companies to return insurance premiums to consumers and businesses to provide financial relief during the COVID-19 emergency. The order covers premiums paid for at least the months of March and April, and possibly May, across various insurance lines, including private passenger automobile, commercial automobile, workers' compensation, and commercial liability. The Commissioner's Bulletin requires insurance companies to provide a premium credit, reduction, return of premium, or other appropriate adjustment as soon as possible, and no later than August 2020.

Several auto insurance companies have voluntarily refunded premiums to drivers, and the Bulletin extends these private personal auto policy reductions to more companies and adds commercial lines. The refunds reflect the reduced risk of accidents and loss due to "shelter in place" restrictions and the decline in driving, which has resulted in fewer accidents, injuries, and fatalities on public roads.

Major U.S. insurers are offering credit to auto and motorcycle policyholders following the decline in driving as most Americans stay at home. Allstate, one of the largest U.S. auto insurers, returned more than $600 million in premiums to customers, with most receiving a 15% "payback" of their monthly premium in April and May. Other companies offering refunds include American Family Insurance, Aviva Canada, Geico Corp, and Liberty Mutual Insurance.

Consumer advocates have applauded the move but also stated that the amounts returned were not enough, and some drivers are even pursuing a class-action lawsuit to reclaim the money they paid. The California Insurance Commissioner has been a leader in this area, ordering insurers to provide additional refunds to drivers in the state, and experts hope that other states will follow California's lead.

Car insurance companies to give more money back to drivers

California leads the way

California Insurance Commissioner Ricardo Lara has ordered insurers to return premiums to consumers and businesses, providing much-needed financial relief during the COVID-19 pandemic. The Commissioner's action reflects the reduced risk of accidents and loss due to "shelter in place" restrictions. With Californians driving fewer miles and many businesses closed, consumers needed relief from premiums that no longer reflected their present-day risk of accident or loss. The Commissioner's bulletin requires insurance companies to provide a premium credit, reduction, return of premium, or other appropriate premium adjustment as soon as possible and no later than August 2020. This action is expected to put money back into people's pockets when they need it most.

Major US insurers offer credit

Major US insurers are offering credit to auto and motorcycle policyholders following a decline in driving as most Americans stay at home under widespread orders to help contain the spread of COVID-19. For example, Allstate, one of the largest US auto insurers, said it would return more than $600 million in premiums to customers. Most customers will receive a "payback" of 15% of their monthly premium in April and May. Other major insurers such as American Family Insurance, Aviva Canada, and Geico Corp have also offered to return premiums or provide additional relief measures to drivers.

Consumer advocates push for more

While consumer advocates applauded the move by insurers to return premiums, they also said that the amounts returned were not enough. One influential state insurance regulator, California Insurance Commissioner Ricardo Lara, agreed that insurers didn’t go far enough in their givebacks. He found that the average rebates issued from March through September 2020 to drivers in the state should have been double what drivers actually received. This means that further rebates of around 15% are possible. Consumer advocates hope this is the beginning of a reckoning for car insurance companies that will lead to premiums being returned to drivers across the board.

Class-action lawsuits filed

Some drivers aren’t waiting for state insurance officials to take action and are instead taking their cases to court. In February, a Las Vegas-based law firm filed 10 class-action lawsuits on behalf of drivers in Nevada who were overcharged by car insurance companies. The suits against Geico, State Farm, Progressive, Allstate, Nationwide, USAA, Farmers, Travelers, Acuity, and Liberty Mutual charge that the refunds these companies issued didn’t constitute “fair or meaningful relief.”. Jacob van Cleef, a consumer watchdog associate at U.S. PIRG, predicts that the brighter spotlight on this issue will mean it’s only a matter of time before other states follow California’s lead.

How insurance companies set auto premiums

During the pandemic, insurance companies returned a portion of auto premiums as driving decreased due to COVID-19 lockdowns. For instance, Allstate returned more than $600 million in premiums to customers, with most customers receiving a 15% "payback" of their monthly premium in April and May. Other companies that returned premiums include American Family Insurance, Aviva Canada, and Liberty Mutual Insurance.

Insurance companies determine auto premiums by starting with a base rate and adjusting it based on rating factors specific to the individual and their policy. These rating factors include:

• The make, model, and year of the car: This affects how expensive it is to repair or replace.
• Location: Where the individual lives and keeps their car.
• Driving record: The number of claims filed with the insurance company.
• Number of drivers and their experience: The number of vehicles on the policy and the drivers' experience.
• Personal factors: Age, credit history, education, gender, marital status, employment status, and occupation.

Other factors that influence auto insurance premiums include:

• Repair and replacement costs: As more technology is integrated into vehicles, repairs become more expensive and time-consuming, leading to higher premiums.
• Inflation trends: Inflation can cause insurance premiums to increase.
• Theft and crash rates: Areas with higher theft and crash rates may have higher insurance premiums.
• Age and gender: Younger drivers and individuals who are listed as men on their license may have higher premiums.
• Credit score: A higher credit score can lead to lower insurance premiums.
• Marital status: Married drivers may have lower auto insurance rates than single drivers.
• Coverage level: Purchasing higher coverage limits or more exhaustive policies will increase the premium.

Accidents and auto insurance premiums

When it comes to accidents, insurance companies establish an at-fault party to effectively manage car accident claims, even if there are mitigating circumstances. Being at fault in an accident can lead to an increase in your auto insurance premiums as it indicates a higher risk. The degree of fault assigned in an accident influences how long it stays on your record, which varies depending on your location and insurer.

The impact of an accident on your insurance premium also depends on the type of accident. At-fault accidents typically lead to higher premium increases than no-fault accidents. However, any car insurance claim can affect your premium, and filing multiple claims within a short period can result in a higher risk assessment and, consequently, higher rates.

On average, car insurance rates increase by $840 after an at-fault accident. The exact amount varies by insurance company, driving record, claims history, geographic location, age, and gender. Young drivers often experience the highest increases after an accident as insurers view them as a riskier group to insure.

To mitigate the impact of an accident on your insurance premium, consider enrolling in an accident forgiveness program, improving your credit score, increasing your deductible, or shopping around for lower premiums and special discounts. Remember, insurance companies are required to inform you of any changes to your insurance premiums and the reasons behind them.

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