Auto insurance companies continue to overcharge consumers even though fewer claims are being filed due to the pandemic
The reduction in my auto insurance premiums that I’ve received from State Farm due to the pandemic is way too low. When I wrote about this topic in April, it looked like State Farm would be stepping up and doing a good job on the refunds. However, I looked through what I’ve paid for premiums since March and the reductions are paltry.
Insurers and insurance regulators should provide ongoing auto premium relief as auto claims remain up to 50 percent below normal levels due to the covid-19 pandemic and related restrictions, the Consumer Federation of America and Center for Economic Justice recommend.
The groups have monitored auto crashes in Texas and Massachusetts since March and continue to find that fewer miles driven translates into fewer auto accidents – but this hasn’t in turn translated into premium relief for many consumers.
“People are still out of work, staying home, and driving less,” said J. Robert Hunter, the CFA’s director of insurance.
Hunter said by failing to return the excess premiums that policyholders keep paying, insurance companies are racking up huge unearned windfall profits while Americans are facing financial devastation and a growing health crisis.
The CFA and CEJ have analyzed crash data from various states’ Departments of Transportation. Table 1 above and Table 2 below show the results for Texas and Massachusetts. In both states, there was an increase in the frequency of accidents in June compared to the spring, but crashes are still between about 12 percent and 50 percent below June 2019.
In mid-March, the CFA and CEJ wrote to insurance regulators warning about windfall pandemic profits for auto insurers if regulators failed to act to protect consumers. While a couple of states took action to order premium relief, most state insurance commissioners took no action, he said.
“As predicted, auto insurers are now reporting windfall profits,” Hunter said.
For example, Allstate reported a $1 billion reduction in claims for the second quarter of 2020 compared to the same period in 2019, despite an increase in vehicles insured and premiums. Its second quarter profits were $1.22 billion, compared to $821 million in the second quarter of 2019. And Progressive reported profits of $2.268 billion for the second quarter of 2020 compared to $1.243 billion for the second quarter of 2019.
Texas Department of Insurance hasn’t acted on auto premium relief
In Texas, a coalition of community groups wrote to Commissioner Kent Sullivan asking why the Texas Department of Insurance had taken no action on auto premium relief. In response, the Department wrote, “We cannot determine an excessive long-term profit on a month by month basis with incomplete information.”
“The lack of action by Texas – and many other states – to protect consumers from excessive auto insurance premiums is inexplicable,” said Birny Birnbaum, director of the CEJ. “The Texas Insurance Commissioner seems to be the only person in Texas without the information needed for premium relief.”
Birnbaum said the data on crash reductions and the actions by some insurers to provide premium relief would lead anyone who cared about consumers to take the types of actions that the commissioners of California and Michigan have taken.
“It is cruel to tell consumers who need and deserve auto premium relief now that they have to wait for many months for TDI to get ‘complete’ data,” Birnbaum said.
California, Michigan, New Jersey, and New Mexico insurance commissioners have taken action
Only California, Michigan, New Jersey, and New Mexico have ordered insurers to make refunds during the spring due to the pandemic. California extended its order through June and required companies to make ongoing refunds should the reduced accident frequency continue.
Texas’s failure to take action is especially inexcusable, given the ongoing decline in crashes and the persistence of the pandemic there, Birnbaum said, adding the commissioner’s negligence reflects a profound misunderstanding of both rate standards and the current situation for consumers.
Most insurers are now pocketing their covid windfalls, after promising start with premium relief for April and May
Although a few auto insurers have voluntarily continued their refund programs beyond May 31, most companies haven’t. Table 3 shows the refund programs the nation’s largest insurers have carried out since the covid-19 pandemic began to close down the country in March.
The fact that insurers are reporting unfair, excessive profits in the second quarter of 2020 despite making paybacks shows that CFA/CEJ were right when they indicated in earlier releases that the March, April, and May paybacks were too small, said Hunter.
“We indicated that the paybacks of about $12 billion in the second quarter were too low and should be doubled, but most regulators did nothing, handing insurers about a $12 billion windfall in March, April and May at the expense of their constituents, many of whom were unemployed or otherwise financially stressed,” Hunter said, adding since May the windfall situation has gotten even worse.”
“Unfortunately, many insurance companies seem to think they did enough when they gave back a portion of the excess premium they collected this spring,” said the CFA’s insurance specialist Doug Heller. “But this pandemic persists across the country.”
Heller said the same reasons that made refunds necessary in the spring have continued into the summer, and state insurance commissioners should order insurers to return more premium rather than leave companies with another coronavirus windfall.”