Auto Insurance

State Farm’s 11% Rate Cut Highlights Urgent Need for Action by State Insurance Commissioners

Most Drivers Will Be Paying Too Much for Auto Insurance This Summer Unless Regulators Take Action Now

Washington, D.C. – Consumer Federation for America (CFA) sent a letter to the nation’s state insurance commissioners today, calling on them to do more to ensure that pandemic-related auto insurance relief is sufficient. “Market forces alone cannot and will not protect consumers from excessive premiums and urgent regulatory action is needed to ensure fair treatment of consumers and insurer compliance with statutory rate standards,” CFA’s Director of Insurance J. Robert Hunter wrote.

CFA congratulated State Farm for its policyholder-oriented response to the COVID-19 crisis as the only major insurer that has both promised refunds dating back to mid-March when auto insurance exposure was transformed overnight by COVID-19 and has initiated a process for addressing the problem of ongoing excessive rates well into the future.

But State Farm’s action makes clear the wholly inadequate response of state insurance regulators.  On Monday, State Farm announced that it will cut auto insurance rates by an average of 11% later this summer to account for a continuation of reduced driving and fewer accidents due to the COVID-19 pandemic and its ongoing impacts. While the proactive reduction will be welcome relief for customers, CFA highlighted that the company’s policyholders will continue to pay excessive premiums until the new rate change takes effect and only when their policy renews. For the period of March 20 through May 31, State Farm has provided 25% refunds to customers due to the pandemic (earning an A on the CFA/CEJ Pandemic Response Report Card), but it has made no similar promise to alleviate excessive rates between June 1 and whenever customers can take advantage of the rate cut, which begins, for example, on September 7 in Michigan.

“Between May 31 when State Farm’s 25% discount ends and sometime this summer or fall when State Farm’s 11% rate deduction kicks in, there is a COVID gap where rates will clearly be very excessive,” said Hunter. “I say this not to pick on State Farm, which is doing the best job of granting relief in the industry, but to use the gap to point out the lack of regulatory guidance and action generally.”

Most companies have granted significantly less relief to date, despite the historic drop in car crashes. Meanwhile, few state regulators have demanded any refunds or reductions from companies, despite state laws that prohibit excessive rates. Only the insurance commissioners in California and New Jersey have ordered insurers to issue refunds and prove they are returning enough to their policyholders.

CFA, in its letter, asked that Insurance Commissioners respond to three key questions by May 28:

  1. Are the premiums credits for March, April and May sufficient and what minimum credit should be required?
  2. Are premium credits for June and beyond being provided – including any periods between the last credit and the effective date of future filed rate decreases – and what minimum credit should be required on a monthly basis over the summer?
  3. What data and analytic tools is the state using to assess needed premium relief action by insurers?  While regulators have been collecting data on business interruption and health insurance, state commissioners have not sought data to independently assess auto insurers’ action or inaction concerning rates this spring or into the future.

CFA has written several letters to Commissioners about the need for premium relief, data collection, and regulatory guidance, dating back to March 18, 2020. The groups have also issued and updated a Report Card on auto insurance company responses to the pandemic. The groups will be evaluating the responses of insurance commissioners to the ongoing challenge of ensuring that consumers are not overcharged and issuing a Regulator Report Card this summer.