State Farm gets an ‘A’ and GEICO a ‘D-‘ on report card of refunds or credits for driving less due to the coronavirus pandemic
Companies that sell more than 82 percent of the auto insurance in the United States have announced that they’ll be refunding or crediting drivers more than $6.5 billion over the next two months. The payments are due to the insurers’ savings from fewer auto insurance claims related to the huge reduction in cars on the road and miles driven during stay-at-home orders and other covid-19 precautions.
The Consumer Federation of America and Center for Economic Justice contacted insurers and state insurance regulators to urge this type of relief in letters to commissioners sent on March 18 and March 30.
The groups also assessed different approaches insurer could use for relief and a way to ensure fairness.
CFA and CEJ said the premium pay-backs were necessary because insurance rates suddenly became excessive when assumptions about miles driven and claim frequency became obsolete because consumers were told to stay home and businesses were closed. Without 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 the individual’s reduced risk exposure.
- Second, overall insurance rates became excessive when the actual number of auto accidents dropped by 50 percent or more suddenly. 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 said 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, isn’t enough given the expected drop in claims. Among the groups’ recommendations is for state insurance regulators to collect data to assist insurers – especially small and medium-sized insurers – to assess the amount of needed premium relief.
“We applaud the many insurance companies that have recognized that they cannot sit on policyholder premium while their customers sit at home,” said J. Robert Hunter, director of insurance for CFA. “But consumers might need double this amount to balance how much they pay with how much they drive this year. We expect companies and commissioners to help make this right as Americans struggle through this crisis.”
While most of the 35 largest insurers have announced some amount of refunds, credits, or reductions to account for covid-19 changes, some haven’t made such promises as of April 12.
Those who haven’t offered relief include most regional Auto Clubs affiliated with AAA (only CSAA of Northern California has promised relief), National General, Mapfre, Country Financial, and Sentry. In addition, Erie has promised a future rate cut but nothing to account for the current changes their customers have had to make. Table 1 above lists the relief provided or promised by each of the nation’s 35 largest auto insurers.
Grading the refunds
CFA and CEJ have evaluated each of the companies’ refunds according to a three-part assessment, with three possible points for each part:
- Amount of premium relief
- Time frame covered by relief
- Method of delivery of the relief
Depending upon their total points, each company was awarded a grade of A through F, with companies that haven’t taken any action remaining ungraded but are failing their policyholders due to inaction.
The highest scores were awarded to companies that refund 21 percent or more of premium; cover at least part of March, April, and May premium; and make immediate payment to consumers. CFA and CEJ also awarded one extra point each to American Family and Allstate for their industry leadership, having been the first to announce actions.
The top five programs established as of April 12 are:
- State Farm, A, which has promised an immediate dividend to customers that accounts for about 25 percent of premium for the period of March 20 through May 31.
- American Family, A, which is providing an immediate $50 refund for each vehicle, equal to an average of 21 percent of premium for April and May. American Family also gets credit for early action.
- Shelter Insurance, B+, which is covering 30 percent of customers’ premium for April and May.
- Tennessee Farmers, B+, which is providing about 24 percent per vehicle covered for April and May.
- Allstate, B, which is providing 15 percent for April and May but gets credit for early action.
Among the companies that have announced a response to the covid-19 crisis, the worst scores went to Erie and GEICO:
- Erie, F, which claims to be providing customers with $200 million in relief, but is actually only promising to cut rates sometime in the future.
- GEICO, D-, which has promised over $2 billion in relief, is requiring customers to renew their policies before seeing savings, so only those renewing over the next two months, about one-third of GEICO’s policyholders, will see any savings during the stay-at-home orders currently in effect.
In addition to the few larger companies that haven’t provided relief, several smaller insurance companies, including many of the non-standard companies, that often serve poorer neighborhoods and communities of color, haven’t announced actions as of April 12. Many of the customers of these smaller companies are Americans who have been the hardest hit by covid-19 and statewide lockdowns, the groups said.
Assessing the response
In addition to the actions of individual insurers, CFA and CEJ are reporting on the response from state insurance regulators.
The groups first apprised insurance commissioners of their concerns that rates were becoming excessive as mileage and claims fell drastically in a March 18, 2020 letter. The groups urged commissioners to start collecting data and encourage companies to begin providing premium credits to customers who were staying at home or had lost their jobs. The groups followed up two weeks later with a March 30 letter to all commissioners.
Many states recommended or required, and many insurers responded with, an extended grace periods for non-payment of premium during the crisis. However, by the end of March, only commissioners from Alaska, Maryland, and Pennsylvania had urged insurers to provide premium relief due to reductions in miles driven and claims.
“In every state, consumers rely on their insurance commissioner to ensure that the auto insurance premiums are fair and not excessive,” Birny Birnbaum, CEJ’s executive director. “The regulators have worked tirelessly to respond to the COVID19 crisis, particularly on health insurance issues.”
But, Birnbaum said, the groups were puzzled by the lack of activity by April 12 by insurance commissioners because Americans spend more on auto insurance than any other type of insurance other than health insurance – $250 billion in 2019.
“There is still a need for the regulators to step up, as critical guidance for current and future relief is needed,” Birnbaum said.
Premium relief of more than 50 percent may still be needed and what else needs to be done
The CFA and CEJ said that companies and regulators will need to review the impact of driving reductions on accidents and claims and, in most cases, provide additional relief. Also, companies that provide no relief should be required to immediately explain why their rates aren’t currently excessive and in violation of insurance rate laws in every state.
Insurance commissioners should also begin collecting data on accidents and claims activity on a weekly basis to assess insurers’ programs and determine, in addition, if the overall rates of companies will be excessive even after Americans start going back to work since America may not open up fully for some time and many small businesses may not reopen.
“Data are showing that around the country many cities and counties are seeing 80 to 90 percent less traffic on the roads,” said Birnbaum. “Accidents and claims have surely fallen by an unprecedented amount and the premiums that consumers are charged have to revised drastically to reflect this change.”
The groups also warned that consumer credit sores are likely to fall due to the covid-19 crisis and huge increase in unemployment. Since credit history impacts premiums in all states except California, Massachusetts, and Hawaii, drivers could face premium increases due to the economic impact of covid-19. Consumer groups say that there should be a moratorium on the use of credit in underwriting and pricing in the wake of this crisis.