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Because people throughout the state began driving less due to the COVID-19 pandemic, the state’s Insurance Commissioner Ricardo Lara ordered insurance companies last year to return premiums paid for at least Mar. and Apr. of that year. However, as the LA Times reported, major vehicle insurers actually shortchanged California policyholders by hundreds of millions of dollars when it came to refunding premiums.
Lara has now said he’s giving the companies until Apr. 30 to clarify how they’ll make up the difference. “While millions of us stayed home helping to fight the spread of the virus and reducing the risk of accidents for our essential workers, insurance companies continued to collect inflated premiums,” he said. “The bottom line: Insurance companies overcharged consumers and need to do more to make it right and help Californians recover.”
State Farm reportedly said it will return $400 million to customers, representing an average refund of $100 for each California policy to cover the second half of 2020. A company spokesman told the LA Times it was merely a coincidence that the refund was announced at the same time Lara cracked down on the industry. As the newspaper reported last Apr., some car insurers were imposing rates that assumed people were driving as much as before the pandemic.
Through the announcement, Lara said his office determined that from Mar. to Sep. of last year, the 10 biggest insurers — which represent 80% of total coverage— refunded an average 9% of auto premiums. However, an analysis by the commissioner’s office determined that the companies should have returned nearly twice that amount, or an average refund of 17% for the seven-month period. The total outstanding could reportedly run to half a billion dollars, if not more.
Moreover, Lara’s staff noted that claims for bodily injury and damage to vehicles fell by roughly 40% between Mar. and Sep. given the decrease in driving by California motorists. And yet, per staff findings, the leading insurers charged about $220 million more than they should have during the first full month of stay-at-home orders.
Researchers at UC Davis determined that there were about 15,000 fewer car collisions a month and roughly 6,000 fewer crash-related injuries and fatalities monthly because of the stay-at-home orders. “There is no equivalent in our recent transportation history to such large changes in vehicle movement on our state and local roads,” the researchers noted.
And yet, seemingly, the auto insurance companies ignored this. From Mar. to May 2020, all 10 of the leading vehicle insurers reportedly offered refunds ranging from 10% to 22%. But by Dec., only four insurers were still offering refunds, Lara’s team discovered. Also, as reported by the LA Times by talking to a Sherman Oaks resident, after receiving a refund of $77 from Allstate for April, May, and June combined, his monthly premium for July to Dec. jumped from $170 to almost $190 when his coverage was renewed.
A former reserve officer with the Los Angeles Police Department told the newspaper that his insurer, Hartford, was estimating his total 2021 mileage at 4,000 miles. He actually drives his Toyota Prius less than 1,000 miles annually because of COVID. And after the LA Times contacted the company to ask how it came up with the inflated figure, the former reserve officer said that the company had lowered the estimate and the corresponding premium, saying the whole thing had been “an error.”
Michael Soller, a spokesman for Lara, told the LA Times that the insurance commissioner is aware that some drivers are still paying inflated premiums, even though the pandemic has sharply decreased their annual mileage. “Insurance companies must give consumers options to reduce their ongoing premium payments,” he said.
Lara will also reportedly seek data from commercial insurance companies about vehicle rates charged to California businesses. “If the data show that insurance companies overcharged our businesses, I am going to be mandating them to return premiums, especially to small businesses that have borne the brunt of pandemic closures,” he said.