Automobile insurance companies are making windfall profits from Californians idled by Coronavirus Stay at Home Orders and should refund or credit premiums to motorists, consumer advocates said in a petition filed with the California Insurance Commissioner.
The non-profit Consumer Federation of California Education Foundation (CFCEF) pointed out that millions of California workers, students and parents have been confined to their homes for a period that may extend for months as the state combats the spread of COVID-19. Californians should receive refunds of premium payments that are tied closely to the number of miles driven each year.
Under California law, the number of miles driven annually must be given great weight in setting a motorist’s premium. Only a driver’s safety record has more impact on premiums than miles driven.
“The roads are empty, and the owner of Geico has acknowledged that auto accident claims have dropped as a result. Fewer claims means windfall profits, unless customers are credited the difference,” stated Richard Holober, Director of the Consumer Federation of California Education Foundation. “Only nine percent of the lowest paid workers have jobs they can perform from home, where many are confined without income. The working poor desperately need extra cash while they struggle to survive. Insurers must step up to the plate with refunds and premium reductions, and the Insurance Commissioner must compel them if they fail to act swiftly.”
On March 13, before California issued Stay at Home orders, Geico owner Warren Buffet stated, “I can tell you one thing, it’s kind of interesting, we’ve seen in the last two weeks, for example, fewer accidents reported now…. People just haven’t been driving as much and it’s noticeable. So people have changed their behavior.”1
On Thursday, March 19, Governor Newsom issued a Stay at Home Order impacting 40 million Californians. Earlier last week, similar orders issued by county officials had idled ten million Californians.
On March 18 the Golden Gate Bridge District asked for emergency federal funds citing a 70% drop in commuter traffic, which has reduced bridge toll revenues.2
In China where home confinement orders were issued in January, automobile insurance executives witnessed a significant drop in auto-accident related insurance claims, and stock analysts have raised price targets for publicly traded auto insurance companies.3
In California it is unlawful to charge motorists in excess of rates that cover the costs of insurance, including accident claim losses, along with reasonable profits. The Insurance Commissioner can act to block excessive premiums.
The petition filed by the CFCEF requests the Commissioner to:
Establish rules requiring insurers to notify policyholders of the right to request a premium reduction when an emergency forces motorists to stay at home, and to
Immediately issue a bulletin ordering insurers to notify customers of the right to get a reduction resulting from decreased driving under the COVID-19 Stay at Home order.
“We calculate that even a 25% drop in accidents would mean that Californians will overpay about a half billion dollars in premiums if the lockdown lasts for five weeks,” said CFCEF’s insurance expert Douglas Heller. “We want to work with the Insurance Commissioner and companies to quickly get premium credits to the millions of Californians who are not driving and not causing accidents. Also, we have asked the Commissioner to establish new rules to ensure an ongoing mechanism for providing relief in this and future crises.”
The Bureau of Labor Statistics reports that only nine percent of the lowest paid quartile of workers have jobs that can be done from home. This rises to 62% that can work from home among the top paid quartile of workers.4
Lower paid workers in service, retail, hospitality and similar jobs are least likely to have paid family leave. Benefits.5 As schools and daycare centers shuttered last week, many workers who have a job that remained open were forced to stay at home to care for their children. Millions of students who commute to classes at community colleges and universities are staying at home due to campus closures and deserve auto insurance rate reductions.
“Tens of millions of Californians have reduced their driving to almost zero through no fault of their own. Struggling Californians need all the financial help they can get. Automobile insurance rate reductions and refunds will relieve some of the financial burden. We cannot permit insurers to make a windfall profit from a state of emergency declaration. Give your customers back their money,” Holober said.
Link to CFCEF Petition: https://consumercal.org/wp-content/uploads/2020/03/CFC-Petition-for-Hearing_COVID-19-1.pdf
Since 2013, the non-profit Consumer Federation of California Education Foundation and its sponsor, the Consumer Federation of California, have participated in California Department of Insurance rate cases and regulatory proceedings representing policyholder interests. CFC and the CFCEF have intervened in 15 automobile and homeowners insurance cases, saving seven million consumers over $300 million dollars in premium payments.