Insurance Companies Graded on $6.5 Billion COVID-19 Premium Relief Policies

Spurred by pressure from consumer advocates and their customers who are driving less due to COVID-19 and the Stay At Home orders that have dramatically changed Americans’ daily lives, insurers representing well over 80% of the auto insurance market 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 caused by the unprecedented reduction in cars on the road and miles driven during this national crisis.

CFA and Center for Economic Justice (CEJ) first called for these premium reductions in a March 18^th letter to insurance commissioners across the U.S. The groups reiterated their call for premium reductions in another letter sent at the end of March.

As CFA and CEJ explained to commissioners, prior assumptions about miles driven and claim frequency suddenly became obsolete once consumers were told to stay home and businesses were shuttered, rendering insurance rates excessive and pay-backs a reasonable response. 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, overall insurance rates became excessive when the 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.

CFA and CEJ estimate that rate relief offered as of Monday, April 13 totals roughly $6.5 billion, with most of the 35 largest insurers participating. “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, CFA Director of Insurance. “But consumers might need double this amount to balance how much they pay with how much they drive this year, and we expect companies and commissioners to help make this right as Americans struggle through this crisis,” Hunter continued.

Since issuing the report, most of the large and mid-sized insurers that had not yet announced relief when CFA issued its report have now committed to do so, and California’s Insurance Commissioner announced a sweeping bulletin ordering refunds in response to a petition by CFA member Consumer Federation of California.

With so many of the major insurers committing to reducing premiums for consumers who drive less due to Stay at Home orders, CFA and CEJ evaluated each of the companies’ refund policies to see how they compare. The refunds were evaluated in a three-part assessment that looked at: the amount of premium relief, the time frame covered by relief, and the method of delivery of the relief.

Depending upon their total points, each company was awarded a grade of A through F, with companies that have not taken any action, and thus failing their policyholders by virtue of their inaction, remaining ungraded for now. The highest scores were awarded to companies that: refund 21% or more of premium; cover at least part of March, April, and May premium; and make immediate payment to consumers.

Based on these criteria, the top five insurance programs established to date are:

1. State Farm (A), which has promised an immediate dividend to customers that accounts for about 25% of premium for the period of March 20 through May 31.
2. American Family (A), which is providing an immediate $50 refund for each vehicle, equal to an average of 21% of premium for April and May. American Family also gets credit for early action.
3. Shelter Insurance (B+), which is covering 30% of customers’ premium for April and May.
4. Tennessee Farmers (B+), which is providing approximately 24% per vehicle covered for April and May.
5. Allstate (B), which is providing 15% 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 but 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 evaluating companies’ policy responses, CFA and CEJ also urged state insurance commissioners to place a moratorium on the use of credit in underwriting and pricing. The groups warned that consumer credit sores are likely to fall in the wake of the COVID-19 crisis and massive increase in unemployment. Because 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.

“The continued use of credit scoring by insurers will penalize consumers who are the victims of COVID-19 and the massive economic and medical costs of the virus and government response,” said CFA Insurance Expert Doug Heller. “People’s credit score problems are coinciding with an undeniable reduction in their risk of causing an accident, so insurance credit scoring has become a clearly unfairly discriminatory underwriting, tier placement, and rating factor and should not be allowed when Americans start climbing out of this crisis,” Heller added.

For a full list of tables, grading methodology, and a full breakdown of each company’s policy, visit: https://consumerfed.org/wp-content/uploads/2020/04/Auto-Insurance-Refunds-COVID-19.pdf.

“Emergency” Regulatory Guidance Allows Predatory Payday Loans

Under the cover of a national and global health crisis, five federal bank regulators issued small-dollar lending guidance last month that lacks the consumer protections needed to ensure loans do not trap borrowers in a cycle of debt.

Issued by the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC), the guidance fails to warn against unaffordable, high interest rates, and says that balloon payments may be appropriate – paving the way for loans with characteristics of payday loans.

Several civil rights and consumer groups, including CFA, condemned the guidance, stating that, “By saying nothing about the harm of high-interest loans, regulators are allowing banks to charge exorbitant prices when people in need can least afford it. They have also lent credibility to single balloon-payment structured loans, which have been shown to trap people in a cycle of repeat reborrowing and crushing debt.”

“This is the worst possible time for banks to make predatory payday loans. Government regulators have opened the door for banks to exploit people, rather than to help them,” they added.

This is not just a theoretical concern. “Around the time of the last recession,” the groups warned, “a handful of banks issued ‘deposit advances’ that put borrowers in an average of 19 loans a year at over 200% annual interest. These bank payday loans disproportionately harmed the financially vulnerable and badly damaged banks’ reputations. Since 2013 when regulatory guidance warned against this form of credit, banks have mostly stayed away.”

CFA and our fellow civil and consumer advocates will be monitoring whether banks offer loans that help or hurt consumers.

“At this time of crisis, consumers need more protections from predatory practices and not less. Unfortunately, this guidance provides precisely the opposite of what consumers need right now,” stated Rachel Weintraub, Legislative Director and General Counsel with Consumer Federation of America.

“Modernized” Alcohol Label Leaves Consumers in the Dark

The Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB) released a new alcohol labeling rule earlier this month that claims to “modernize” the labeling of alcohol but actually does little to inform consumers, according to CFA Director of Food Policy Thomas Gremillion. Gremillion called the final rule “an abject dereliction of duty and an affront to American consumers.”

In comments to the TTB, CFA and numerous other consumer groups voiced their support for labels that include information about alcohol content, ingredients, and nutrition facts, the same information provided by all other food and beverage products. Unfortunately, TTB has not only failed to respond to CFA’s petition, they have also enacted all of the rule amendments desired by industry while it “continues to consider” issues raised by non-industry commenters.

This move runs counter to surveys that indicate that almost all Americans (94%) support labels that include the enhanced information sought by CFA.

CFA and its partners also asked TTB to undertake a Congressional reporting process, provided for under the Alcoholic Beverage Labeling Act of 1988, with the objective of amending the health warning statement required to appear on all alcoholic beverage labels. The groups call specifically for a clear warning statement that “Alcohol causes cancer.”

“Consumers want and deserve accurate information on alcohol labeling,” said Gremillion. “This rule completely misses the mark and further reinforces the need for congressional action.”

Groups Call on DOE to Ensure Test Procedures for Refrigerators are not Weakened

In response to a recent Department of Energy Notice of Proposed Rulemaking (NPRM) regarding test procedures for refrigerators, CFA and five other environmental and consumer groups filed comments with DOE earlier this month laying out three points of improvement for the Department going forward.

1. DOE should consider adopting the IEC 62552:2015 test procedure for refrigerators and freezers to improve representativeness.

The current test procedure “is intended to simulate performance in more typical room temperature conditions (72°F) with door openings.” However, the groups point out that the test is conducted in a 90°F room with doors closed and thus does not reflect typical usage conditions. DOE also stated that “…requiring actual door openings would introduce test variability and increase test burden.” However, the groups point out “…that the IEC test procedure—IEC 62552:2015—provides a method to better reflect the field performance of refrigerators and freezers, including the impact of door openings and food loadings, without requiring a series of actual door openings to be performed.” Even some in industry support the IEC test procedure. For example, Samsung recently stated that it would reduce burdens on manufacturers and “would allow companies who choose to do so to design international configurations for refrigerators, which could reduce cost for manufacturers in design and testing, resulting in efficiencies for manufacturing.”

2. DOE should maintain the existing approach of testing demand-response function communication modules in the as-shipped configuration and adopt a similar approach for other consumer-accessible features.

The current test procedure dictates that “…products that have a communication module for demand response are tested with the communication module in the as-shipped position.” DOE is proposing to do away with this requirement “so that communication modules in demand-response capable products would be tested in the lowest energy usage position (i.e. the ‘off’ position).” The groups urged DOE to maintain the current test procedure since it “encourages manufacturers to ship products with demand-response communication modules with those modules in the ‘off’ position. The existing approach therefore does not impede innovation in smart technology nor hinder manufacturers from offering connected functionality.”

3. DOE should investigate the energy consumption of display screens and connected functions and how consumers use these features.

DOE states “…that the Department lacks sufficient data to incorporate the energy consumption of display screens and connected functions in the test procedure.” DOE also expressed concerns around limiting innovation. The groups state that, if the DOE were to investigate the energy consumption of display screens and how consumers use these features, “…the energy conservation standards could be amended to account for the additional features. Capturing display screens and connected functions in the test procedure would thus encourage manufacturers to provide the additional functionality with low power consumption without limiting innovation.”

“Products, and in this case, refrigerators, are becoming more and more technologically advanced. It’s critical that DOE’s determinations about energy efficiency standards be based on test procedures that are designed properly and accurately measure the energy consumption of a product as it is used in real life by consumers,” said CFA Director of Energy Programs Mel Hall-Crawford.

COVID-19: What you Need to Know

CFA staff have been working hard to ensure that consumers’ needs are not overlooked during the COVID-19 pandemic our nation and the world is facing. In order to make this information as accessible as possible to the public, we’ve created a new section of our website entitled: “COVID-19: What you Need to Know.”

In this special section of the website, you’ll find links to public policy changes that CFA has been advocating for, tips for consumers on how to avoid COVID-19 scams and how to shop smart, and a social media toolkit with CFA infographics and tweets.

We encourage all of our readers to share these materials with your colleagues and family in order to help them through this difficult time.

Consumer Assembly Goes Virtual

In the interest of public health and to help in “flattening the curve,” CFA has made the decision to have a virtual Consumer Assembly this year in place of its traditional conference. The two-day virtual event, which will be held during the afternoons of May 6 and 7, will include informative keynote speeches, expert panels, and presentations. If you have any questions about Consumer Assembly, feel free to email Anna Marie Lowery at: alowery@consumerfed.org.