Consumer Federation of America Calls for Auto Insurance Premium Offsets

On March 18, 2020, the Consumer Federation of America and the Center for Economic Justice issued a joint letter to state insurance commissioners. In the letter, it urged those commissioners to direct the auto insurers in their respective states to provide premium offset payments to policyholders whose driving has been affected by COVID-19. 

Fewer people driving = Fewer accident claims

The letter points out that because fewer drivers are out on the road due to statewide business closures and shelter-in-place orders, the overall frequency of claims will decrease. Therefore, whatever losses insurance companies suffer due to premium refunds will likely be offset by savings on claim payments. 

Specifically, consumer organizations point out that “miles driven is one of the primary determinants of claim frequency.”  If premium offsets are not provided, those who have significantly reduced their driving will be paying unreasonable and excessive premiums based on now-outdated estimates of miles driven.  Not only that but the failure of insurance companies to provide premium refunds “will provide insurers with a windfall.” 

The letter goes on to say: “Imagine if the population density of New York City transformed into the population density of Idaho overnight.  In terms of drivers on the road, that is exactly what is happening in many urban and suburban areas.” 

People should pay less in premiums if they’re not driving

The impact of these claims reductions, and the related savings, according to the CFA and CEJ, should be instantaneous, as the number of automobile accidents has (and will continue to be) significantly below typical levels. 

These conclusions were supported by a 2016 study published in the Journal of the International Actuarial Association, an industry publication that devotes itself to the mathematics of insurance.      

The groups advocated that “as the frequency of accidents dwindles, the savings to the insurance pool should be returned to the people who have paid for coverage based on an assumed risk level that has been made inaccurate as a result of COVID-19.” 

The letter concluded by encouraging state insurance commissioners to not only tell insurance companies to offer premium relief but also to specify that such relief should intended as a refund or return of premiums previously paid. 

Some insurance companies offering premium offsets, others are not

While state insurance commissioners have been slow to develop and enact responses to these recommendations, some insurance companies have already taken steps to return auto premium payments. 

For instance, Farmers Insurance will provide its policyholders a 20% monthly credit for April and May. Allstate is providing its customers with a 15% rebate for that same time period. 

Farmers has also relaxed payment due dates. Similarly, Nationwide Insurance will return billions in policyholder premiums to assist with coronavirus-related issues. Geico has also announced plans to return auto premiums. 

While these plans sound impressive, keep in mind that an individual auto policyholder is unlikely to receive more than $50-100 from these refund plans. 

While some insurers seem to be taking steps in the right direction on this issue, the CFA reports that the overall response by insurers has been uneven, at best. 

Some insurers refuse to reduce or refund premiums, and some state commissioners remain hesitant to ramp up enforcement efforts to curtail insurers from retaining excess premiums. 

Questions? Contact us today.

If you have a question about automobile insurance or have been injured in an automobile accident, you should contact us today. We offer free consultations. You can also call us 24/7 at (312) 578-9501.