Washington, D.C. – Progressive Insurance reported an 83% increase in net income during the second quarter of 2020 as the COVID-19 pandemic ravaged many states and the economy, according to data released this week by the nation’s third largest auto insurer. Consumer advocates call this haul a Coronavirus Windfall, noting that the company did not return nearly enough premium to customers as accidents and claims diminished due to stay-at-home orders. Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ), which have been urging stronger action from state insurance commissioners since before the first shutdowns, said that the failure of most state insurance commissioners to demand a full accounting of reduced claims and mandate sufficient refunds has left Americans overpaying for coverage while insurer profits have skyrocketed.
On Wednesday, Progressive reported the following Second Quarter 2020 data:
- The company’s net income was up $811 million or 83% ($1.790 billion vs. $979.4 million a year earlier).
- The profits include the expense of the 20% pandemic premium credit Progressive sent to policyholders during the quarter.
- For every dollar that personal lines (predominantly auto insurance) customers paid Progressive, the company only paid 52.4¢ back in claims and adjustment expense during the quarter (calculated by averaging the Loss/LAE ratios for each month of the quarter).
- For every dollar that personal lines policyholders paid Progressive, the insurer kept 14.3¢ of profit, before accounting for the investment income they earned off consumers’ premiums. Over the last decade, auto insurers typically needed 1¢ of such pre-investment profit, as investment income was sufficient for their bottom lines.
In its report, the insurer acknowledged that this windfall was due to “a significant decrease in auto accident frequency due to restrictions put in place to help slow and/or stop the spread of COVID-19.”
“Since March 18, 2020 and in subsequent letters and releases, we have warned state insurance departments that insurers were going to produce windfall profits,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “We also pointed out that the refunds insurers were offering were insufficient to assure that rates were not excessive.”
Notably, the Progressive report acknowledged an extra $16.9 million in premium credits paid to California customers in June, presumably due to the fact that the California Insurance Commissioner has taken action to order fuller and ongoing pandemic refunds to drivers in that state.
The consumer groups said that states must immediately act to require insurers to return the excess premium to their customers, many of whom are now unemployed or financially stressed. The groups said state insurance departments should:
- Review the paybacks and credits insurers have implemented to date to assure adequate relief has been provided;
- Freeze auto insurance rates at the March 1, 2020 level to act as the base for future discount/credit action to keep rates from being excessive;
- Prohibit rate increases during the pandemic as normal actuarial methods do not work when there is so much unknown about driving risk in the near-term to mid-term;
- Order a monthly accounting of accident frequencies – and other relevant data – by insurers as a basis for establishing ongoing premium refunds until more traditional ratemaking can function correctly.
“The framework CFA and CEJ set out in mid-March – to compare new claims filed from that point forward to earlier periods as the basis for premium relief – remains the most responsive sound approach to ever-changing conditions,” said Birny Birnbaum of CEJ. “Had regulators initiated this simple data collection, they would be in a position to protect consumers against insurers’ windfall profits. Instead, we see most regulators waiting for traditional ratemaking data – a fool’s errand given constant and significant changes in driving as the responses to the pandemic – by government, businesses and consumers – change. We’ve also seen regulators accepting absurd excuses from insurers for failing to provide adequate premium relief, including racist tropes against ‘non-standard’ policyholders.”
“Without leadership from state insurance commissioners, insurers like Progressive will ride this wave straight to the bank, while everyone else struggles with economic pain caused by the pandemic,” said CFA’s insurance expert Doug Heller.
J. Robert Hunter, CFA, 703-528-0062
Doug Heller, CFA, 310-480-4170
Birny Birnbaum, CEJ, 512-912-1327
The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.
The Center for Economic Justice, a member of CFA, is a non-profit organization that works to increase the availability, affordability and accessibility of insurance, credit, utilities, and other economic goods and services with particular emphasis on low income and minority consumers.
 Progressive News Release, “Progressive Reports June Results,” July 15, 2020.
 Best’s Insurance News & Analysis, July 15, 2020.