California Commissioner Says Insurers Overcharged Drivers During Pandemic

March 11, 2021

Insurers in California continued to overcharge drivers despite reduced risk of accidents during the pandemic, according to a report released today by Insurance Commissioner Ricardo Lara.

Lara ordered auto insurance companies to return a percentage of paid premiums in April, 2020, as more Californians stayed off the roads in response to public health “stay-at-home” orders.

Lara’s order saved drivers collectively more than $1.75 billion in 2020, according to the California Department of Insurance.

Lara ordered a review of data submitted by insurance companies, and found that insurance companies continued to overcharge consumers despite drastically reduced risk of accidents and loss due to the ongoing pandemic.

Mark Sektnan, vice president of the American Property Casualty Insurance Association, said insurers “took immediate action” when driving was reduced in 2020, and that auto insurers voluntarily provided more than $14 billion in refunds and credits to policyholders for reduced driving during the pandemic.

“Insurers will review Commissioner Lara’s bulletin and report the appropriate data to the California Department of Insurance,” Sektnan in a statement. “Insurers are always looking at their book of business to manage their risk and provide accurate rates to their policyholders in a competitive marketplace. Unfortunately, highway data demonstrates some dangerous trends.”

Sektnan called attention to a report from the National Highway Traffic Safety traffic fatalities increased significantly in the first nine months of 2020, and that various sources have indicated that miles driven have been increasing over the last few months and are approaching pre-pandemic levels.

“The 2020 increase in road fatalities suggests that despite improved automobile technologies and auto safety laws, driver behavior is deteriorating at a rapid pace,” said Sektnan. “Trends in reckless driving could prove even more fatal as traffic volume starts to return to pre-pandemic levels. These dangerous trends, combined with increasing litigation, medical, and auto repair costs impact the marketplace.”

Lara is now directing auto insurance companies to report by April 30 how they will return additional premium back to California policyholders that was reportedly over-collected in 2020. He is also directing commercial insurance companies to provide data about commercial policies held by California businesses.

“My order saved California drivers more than $1.75 billion last year — the most in the nation,” Lara said in a statement. “But while millions of us stayed home helping to fight the spread of the virus and reducing the risk of accidents for our essential workers, insurance companies continued to collect inflated premiums. The bottom line: Insurance companies overcharged consumers and need to do more to make it right and help Californians recover.”

The commissioner’s review included the top 10 insurance groups representing 80 percent of the private passenger automobile insurance market. He found:

  • Over seven months from March to September, insurers returned on average 9% of auto premiums, but the CDI analysis found they should have refunded nearly double that amount —17% — over that period.
  • Bodily injury claims fell by 41.7% and property damage liability claims fell by 40.4% during March to September 2020 compared with the same period in 2019.
  • For April 2020, the first full month of the statewide “stay-at-home” order, the gap between the refund indicated by insurance company group data and the premium they actually returned was roughly 13% — representing about $220 million in excess premium collected by insurance companies for that month alone.
  • All of the top 10 private passenger insurance groups offered premium relief ranging from 10 to 22% for the months of March to May. However, by December, only four insurance groups were still offering any partial refunds, despite the continuing pandemic and a multitude of counties still remaining in the purple tier, or “most restrictive” tier.

Lara issued his first bulletin directing insurance companies to provide partial premium relief on April 13, 2020, as it became clear that the pandemic was reducing traffic congestion and business losses. He extended his bulletin in May and again in December, directing insurance companies to continue to provide partial premium refunds as long as the pandemic resulted in reduced risk of loss and to report those refunds to him.

The commercial insurance data is expected to be available later this summer.

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