Washington, D.C. – Companies that sell more than 82 percent of the auto insurance in America have announced that they will be refunding or crediting drivers more than $6.5 billion over the next two months. The payments reflect the insurers’ savings from far fewer-than-anticipated auto insurance claims because of the radical reduction in cars on the road and miles driven due to Stay at Home orders and other COVID-19 precautions that have dramatically changed Americans’ daily lives.
Consumer Federation of America (CFA) and Center for Economic Justice (CEJ) first called on insurers and state insurance regulators to ensure this type of relief in letters to Commissioners sent on March 18 and March 30. Today, we thank those insurers who have taken action to make payments to consumers. We also provide a detailed assessment of the various insurer approaches to relief and outline a path for ensuring fairness over the coming months, with particular emphasis on the role of state insurance regulators.
As CFA and CEJ wrote on March 18, the premium pay-backs are reasonable and necessary to account for insurance rates that suddenly became excessive because assumptions about miles driven and claim frequency became obsolete once consumers were told to stay home and businesses were shuttered. Without such refunds, insurers would be charging excessive premiums in two ways.
- First, consumers whose premiums were based on driving 1,000 miles a month, but who are now driving 100 miles a month, for example, should get a lower premium because of that individual’s reduced risk exposure.
- Second, and the basis for the insurer refunds, is that overall insurance rates became excessive when the actual number of auto accidents dropped by 50% or more virtually overnight. Rates for all policyholders became excessive regardless of any individual’s change in driving.
In their review and analysis of insurer actions to date, the groups also note that the insurers have taken a variety of approaches to providing premium relief for March, April and May premiums. Among the groups’ findings are that the premium relief, although welcome, is not sufficient given the likely drop in claims. Among the groups’ recommendations is for state insurance regulators to collect data to assist insurers – particularly small and medium-sized insurers – to confidently assess the amount of needed premium relief.