Insurer Practices/Profits

California Insurance Department Ends Auto Insurers’ COVID Windfall Profits

Consumer Groups Ask Why Other States Don’t Keep Insurance Companies from Raiding Consumer Pocketbooks with their Windfall COVID Profits

Washington, D.C.—The Consumer Federation of America (CFA) and Center for Economic Justice (CEJ) praised California Insurance Commissioner Ricardo Lara’s action to require insurers to give back COVID windfall profits by sending additional auto insurance premium refunds to California customers. The California Department of Insurance is also requiring ongoing refunds for consumers as long as the pandemic keeps driving and accident rates low.

“Since March 2020, consumers have been driving much less than they were before the COVID-19 pandemic, and that is still true today. As a result, crashes and claims are well below normal, which means massive insurer profits,” said J. Robert Hunter, CFA’s Director of Insurance and a former Texas Insurance Commissioner. “Commissioner Lara’s announcement is most welcome and will result in additional money being returned to California drivers. Other Insurance Commissioners should be ashamed that they have done so little; they should follow suit and stand up for the residents of their states,” he continued.

CFA and CEJ put regulators on notice in March 2020 of impending windfall profits for auto insurers due to dramatically reduced driving, fewer cars on the road, fewer accidents, and fewer auto insurance claims. The groups repeatedly pressed commissioners to require insurers to give up COVID windfall profits and return premium to consumers. The groups calculate that since the pandemic began, auto insurers nationwide have seen about $25 billion in fewer claims, while the premium relief from insurers has been half or less than that.  In addition, miles driven, cars on the road and auto claim frequency are still down from pre-pandemic levels as more businesses have decided to move workers from offices to working from home.

State Farm Announces California-Only Refunds of 18% for June Through December 2020

 Wednesday, State Farm announced that it would be returning an additional $400 million to California customers as a result of “better than anticipated claim results.” According to State Farm, approximately 3.5 million Californians will receive checks refunding 18% of the premium they paid between June and December 2020. The company has not announced additional refunds for drivers in any other state, and, the consumer groups noted, no other state insurance commissioner has required companies to provide additional refunds of windfall profits.

“Consumers rely on their state insurance commissioners to protect them from being ripped off by insurers, but most have let auto insurers collect massive windfall profits, while the millions of Americans struggled through the pandemic,” said CEJ Executive Director Birny Birnbaum. “Commissioner Lara’s action shows –  and quantifies –  the importance of having a state insurance regulator who will stand up for consumers.”

Insurance Claims Have Fallen Dramatically During the Pandemic

In his announcement, Commissioner Lara revealed that his Department’s review of auto insurance loss data during the pandemic proved the need for additional refunds.  The Department analysis found that bodily injury claims fell by 41.7% and property damage liability claims fell by 40.4% from March to September 2020, compared to the same period of 2019.

While most auto insurers provided limited refunds to consumers in the Spring of 2020, they were extremely inadequate.  California’s review found that from March to September 2020, insurers refunded about 9% of premium to consumers, but they should have refunded 17% of premium. Moreover, since spring 2020 the vast majority of companies have stopped providing any sort of relief. Only in California, which has required ongoing refunds since the pandemic started, are consumers protected from being overcharged.

Insurance Company’s Reported Windfall Profits In 2020

 Auto insurer profits have skyrocketed during the pandemic. On February 22nd, Allstate approved a quarterly dividend double that of previous dividends, after reporting that its auto insurance underwriting income from 2020 was over $3.4 billion or double that of 2019. Earlier this year, Progressive paid an annual dividend of $4.50 per share, which was almost double its 2019 annual dividend. Berkshire Hathaway’s GEICO, similarly, doubled its underwriting earnings in 2020 compared with 2019.

“While the pandemic has taken an incredible toll on Americans, auto insurance companies have swept up huge profits by failing to return billions that drivers overpaid for coverage during this period of dramatically reduced driving and accidents,” said CFA’s insurance expert Doug Heller.

Contacts:
Michael DeLong, CFA, 925-708-1135
Birny Birnbaum, CEJ, 512-912-1327
Doug Heller, CFA, 310-480-4170