The debate over auto insurance refunds intensified during the fall meeting of the National Association of Insurance Commissioners.
Many auto insurers issued premium rebates during 2020 when, at least for part of the year, stay-at-home orders and other pandemic-related impacts caused a substantial decrease in driving throughout the U.S.
Some states and consumer advocate groups have criticized the amount of premium that was returned to consumers as too little, many citing the full-year 2020 underwriting profit of $11.88 billion, which reflected the industry's largest since 2015.
California Insurance Commissioner Ricardo Lara has been particularly aggressive in pushing auto insurers to provide rebates, recently ordering three companies to provide additional reimbursements to drivers he claims were charged excessive premiums at the start of the pandemic. Private passenger auto insurance rates have also idled in California since the early stages of the pandemic, something that The Progressive Corp.'s CEO said has caused the insurer to pull back in the auto insurance market in that state.
A case for more refunds
During the meeting, several consumer advocates argued that the insurance industry has failed to provide an appropriate amount of refunds to policyholders. Consumer Federation of America's insurance expert Doug Heller said premiums charged during the lockdowns were "wildly out of line" with the risk that insurers assumed from their customers.
"Our account calculations indicate that there is still $29 billion to return from the 2020 windfall," Heller said. "There may be other ways to calculate how much more refund is still due to your constituents, but to be sure, more is still due."
Heller said there have not been enough state regulators taking action to ensure excess premium collected has been refunded.
"As we see it, there is no reason that any department should hesitate to do its own investigation and data call and to call upon insurers to return the rest of the accidental windfall the pandemic provided," Heller said.
Insurers defend actions, point to long-term trends
Industry representatives view the situation quite differently. Longer-term losses insurers experienced starting in late 2020 and continuing for the "foreseeable future" have offset any short-term gains seen in the early quarters of 2020, according to Dave Snyder, vice president of international policy for the American Property Casualty Insurance Association.
"We urge you to stay the course and continue to apply the standards that have worked in the past, and avoid the temptation to grant short-term relief," Snyder said.
As driving returns to pre-pandemic levels, higher severity and rising claims frequency are pushing auto insurance costs up to levels not seen since 2017, he said.
California's Lara pushed back against the idea that 2020 represented a mere "fluctuation" in losses, saying that policyholders were overcharged by billions of dollars.
"Doesn't a pandemic then really represent a unique circumstance that warrants unique action to make our customers whole?" he said.
Snyder responded by saying if the methodology advocated for by activist groups was applied for rate decreases, then it would also have to be applied for rapid increases.
"What are we supposed to do, bill consumers mid-term?" Snyder said. "This is a classic example of why the longer-term trends are what ought to govern our collective work in the market as regulators and as companies."
Tony Cotto, director of auto and underwriting policy at the National Association of Mutual Insurance Cos., urged regulators to resist the temptation to look at the situation in a "vacuum."
"Intellectual honesty and logical consistency would demand that anyone advocating for additional rebates for 2020 should also advocate for additional premium charges to consumers for the years from 2010 to 2019," he said.
Washington Insurance Commissioner Mike Kreidler said NAMIC had failed to provide state regulators with enough information to clearly explain its reasoning for the level of refunds insurers provided. He said the data might show that carriers did not give back as much money as they should have.
"If [your insurance companies] want to be in the market and compete, then they have to understand when they wind up making unanticipated gains, they have a certain responsibility to their policyholders," Kreidler said. "If they don't want to acknowledge it, they're probably in the wrong business."
Cotto said he would continue to speak with regulators and work with any state offices on the data that is available.
