Auto insurance providers are facing mounting pressure from clients and various consumer groups, who are demanding bigger refunds amid a significant reduction in claims during the pandemic, according to a Forbes report.
In California, the country’s largest insurance market, Insurance Commissioner Ricardo Lara has issued a directive ordering car insurers to provide information on how the additional rebates will be paid out to policyholders, who he said were “overcharged” last year as the pandemic decreased accident risks.
An analysis by the insurance commissioner’s office obtained by Forbes showed that from March to September 2020, the 10 largest auto insurers in the state refunded an average of 9% in premiums, when they should have returned 17%. By December, the number of insurers offering partial refunds dropped to four.
“Returning insurance premiums is a stimulus that people need right now, and they deserve it as long as they continue to drive less and our roads are safer as a result,” Lara said in a YouTube video.
His order comes as several policyholders in Nevada have sued their auto insurance providers, accusing them of overcharging during the pandemic, when the number of accidents and miles driven has declined.
Carmen Balber, executive director of the California group Consumer Watchdog, told Forbes that these lawsuits, along with Lara’s demand, could force car insurers across the US to pay out additional refunds to policyholders.
“Every insurance commissioner in the country has the power to shine a spotlight on the profits auto insurance companies are making in their state and say that consumers are owed more,” she said.
In Massachusetts, the Division of Insurance followed Lara’s lead asking insurers to submit rate filings, which include data about claims and expenses in 2020, not later than June 30. The department said it wanted to make sure auto insurers are factoring in “pandemic-related shifts in vehicle traffic” in setting premiums.
However, the Center for Economic Justice revealed that besides Lara, no other state insurance commissioner has required insurers to issue refunds to policyholders. Car insurance providers across the country, apart from those in California, have been returning money to clients on a voluntary basis.
The group also told Forbes that auto insurers have seen claims dip by $25 million since the pandemic began but have returned less than half of that amount to customers. It added that it has been working with the Consumer Federation of America in urging state insurance commissioners to demand insurers to return money that policyholders deserve.
In response, the American Property Casualty Insurance Association (APCIA) said that auto insurers have provided more than $14 billion in refunds and credits to customers in 2020 to reflect reduced traffic during the pandemic.
“Insurers understood the urgency of helping businesses and individuals recover from the unprecedented crisis caused by the COVID-19 pandemic and took immediate action to adapt premiums when driving was reduced in 2020,” said Mark Sektnan, vice president of the trade group, in a statement obtained by Forbes. “Insurers continue to work with policyholders to adjust their policies in 2021.”