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California alleges insurance companies overcharged consumers

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On March 11, California Insurance Commissioner Ricardo Lara stated auto insurance companies were overcharging drivers during the pandemic, and  ordered companies to report how they will return additional premiums to policyholders by April 30. The Commissioner also directed commercial insurance companies to provide data about commercial policies held by California businesses, which could lead to additional savings for small businesses struggling during this time.

In April 2020, the Commissioner proposed a similar action following an auto insurance shopping surge in March 2020, returning $1.75 billion to drivers across the state. According to J.D. Power’s new real-time shopping tracker,  LIST, shopping activity  surged as high as nearly 20% in the early part of the pandemic

In acknowledgment of the first proposition, the top ten private passenger groups offered premium relief for  March, April and May 2020, ranging from 10 to 22%. Although carriers returned on average 9% of auto premiums during the months of March to September, the  Department suggested that the refund should have been doubled  during those seven months and mentioned that by December, only four insurance groups were still offering any partial refunds despite the continuing pandemic across the state.  KBW Analyst Meyer Shields predicts that most “insurers will probably refund 5-10% of their annual California written premiums to policyholders.” 

State Farm, the top auto carrier in  California, responded immediately to the Commissioner’s recent order by reporting that it will return  $400 million to its auto customers, applying retroactively from June through the end of last year. This giveback will impact 3.5 million policies, resulting in an 18% premium reduction (about $100 per policy).  American Family Insurance  and  Progressive  also stated they would make efforts to lower rates for their customers in the coming months. 

American Property Casualty Insurance Association (APCIA) rebutted the Commissioner’s request, stating that the organization’s understanding was that insurers took immediate and appropriate action to adapt premiums to reduced driving patterns in 2020 and are continuing to work with policyholders on adjusting their policies in 2021. APCIA also stated in a news release that  insurers across the state are paying major catastrophe claims from 2020  resulting from hurricanes, wildfires and social unrest. 

The Wall Street Journal suggested insurers could be cautious about offering more refunds because of uncertainties about driving patterns ahead. Mark Sektnan, vice president of APCIA, said  “insurers are always looking at their book of business to manage risk and provide accurate rates to their policyholders in a competitive marketplace. Unfortunately, highway data demonstrates some dangerous trends.” 

The NHTSA also backed insurers and reiterated that even though overall vehicle miles traveled decreased during the pandemic,  traffic fatalities increased significantly  in the first nine months of 2020. The Federal Highway Administration also stated that 8.6% fewer miles were driven in September 2020, marking the smallest monthly decline since the peak of the pandemic, suggesting driving patterns are expected to return to normal. 

As of June 2020, auto insurers returned more than $14 billion to customers nationwide, with the  average annual rate falling by 4%; this is the first time rates have fallen since 2013.

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The Zebra is an independent insurance advisor and quote comparison site with headquarters in Austin, Texas. Utilizing its real-time quote comparison tool, The Zebra partners with companies such as Allstate, Liberty Mutual, and Progressive to help consumers browse pricing, coverage, and service level for both home and auto insurance policies.