Auto Insurance

Consumer Groups Applaud Allstate’s and American Family’s Shelter-In-Place Paybacks Reflecting Drop In Claims Due to Reduced Driving

Groups Urge Other Auto Insurers to Follow, Criticize Regulators for Failing to Act

Washington, D.C. –The Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ) applauded insurers Allstate and American Family Insurance for promising premium relief to policyholders totaling $800 million. This reflects a sharp drop in auto insurance claims resulting from far fewer miles driven as millions of consumers shelter-in-place.

The insurers’ action follows the call two weeks ago by CFA and CEJ for premium relief to avoid insurers gaining windfall profits. “Allstate and American Family deserve praise for their industry leadership on this vital first step,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “While it’s too early to tell if the amounts promised are enough to reflect the big drop in auto accidents, the actions by American Family and Allstate are the right thing to do to help policyholders beleaguered by COVID-19 restrictions and job loss.  We urge other insurers to take similar actions quickly.”

The groups noted that they had sent a letter to state insurance commissioners on March 18 urging the regulators to act to get industry wide premium relief for auto insurance consumers – and have seen virtually no action to date other than suggestions to insurers by the insurance commissioners in Alaska and Pennsylvania. “Sadly, this inaction by state insurance regulators and their trade association – the National Association of Insurance Commissioners (NAIC) – is consistent with weak state regulatory oversight of auto insurance,” said Birny Birnbaum, Executive Director of the Center for Economic Justice. “State insurance regulators have failed to collect timely data on auto insurance market conditions,[i] failed to address unfair discrimination[ii] and have now failed to enforce their mandate to ensure insurance rates are not excessive in light of a radical drop in claims.”[iii]

“While Alaska’s insurance commissioner stepped up to push for relief very quickly, it is shocking that states with even greater drops in driving and unemployment issues have remained silent as their residents have continued to overpay for their auto insurance,” said Hunter.

The groups also called on insurers and regulators to create similar programs to return excessive premiums to small businesses whose premiums are based not only on miles driven (commercial auto insurance) but on factors such as payroll, receipts and other factors sensitive to collapse during the COVID-19 crisis.

[i]  State insurance regulators published 2017 average auto premiums by state in March 2020 – data over three years stale.

A draft report on auto insurance availability scheduled for adoption at the now-cancelled NAIC Spring National meeting relied upon data from 2013 to 2017.

[ii]  With the notable exceptions of New York which has stopped the use of education and occupation as rating factors and Massachusetts and California for prohibiting the use of insurance credit scoring and other soci0-economic rating factors, states haven’t acted to stop unfair pricing in auto insurance.  The NAIC has also failed to act.  After over five years of “study,” the regulators have taken no action to stop proxy discrimination caused by insurers’ use of alternative, big data sources in pricing and claims settlement.  The NAIC white paper on price optimization – an illegal practice whereby insurers utilize non-risk factors to adjust rates – failed to give a clear message to insurers to stop the practice.  In the aforementioned “study” by the NAIC to examine auto insurance availability, regulators deferred to industry again by failing to independently collect comprehensive and relevant data and, instead, relied upon data handpicked by insurers.

[iii] CFA and CEJ praised the early action by the Alaska Commissioner