Insurers’ “Premium Relief” Short-Changed Consumers by Over $125 per Insured Vehicle
An analysis by the Consumer Federation of America (“CFA”) submitted to the August National Meeting of National Association of Insurance Commissioners (NAIC) claims that auto insurers nationwide reaped an unfair “windfall profit” as a result of the COVID-19 pandemic. More specifically, the CFA has asserted that insurers selling personal auto insurance pocketed approximately $29 billion in 2020, which they were not entitled to due to the unprecedented drop in miles driven, vehicle crashes, and auto insurance claim rates as a result of the government-ordered shutdowns and other associated emergency pandemic regulations.
The CFA claims auto insurers’ limited “premium relief” dwarfed by their profits
One of the main points of contention for the CFA is the disparity between the “premium relief” auto insurers granted policyholders vis-a-vis the total profits insurers made as a result of the unprecedented government actions at the height of the pandemic. For example, the CFA states that while auto insurers provided almost $13 billion in “premium relief” this amount is less than a third of the $42 billion in “excess premiums.” The CFA argues that instead of increasing payouts to senior management and stockholders, the COVID-windfall should have been returned to consumers as a matter of law.
According to their analysis of insurers’ financial reports, the CFA claims that insurers paid 67.4 cents of premium dollar for claims during the time period between 2016 and 2019. The remaining 32.6 cents of that premium dollar, in addition to “…investment income earned from holding policyholders’ money,” covered an auto insurer’s expenses and profit.
In comparison, the CFA contends that in 2020, only 56.1 cents per dollar of total premium reported was spent for claims. As a result, the CFA concludes that “[t]otal premium of $250.6 billion reported by insurers is net of $7.9 billion in premium relief accounted for by some insurers as a reduction in premium.”
The CFA also takes issues with regulators who have not done enough to enforce rating laws
Aside from the insurers, the CFA also took issue with regulators, including the National Association of Insurance Commissioners, for not doing enough to help return more or not doing more to help return greater windfall premium profits to consumers.
“In virtually every state, auto insurance premiums – by law – cannot be excessive. The inability or unwillingness of almost all state insurance regulators to enforce the law and protect consumers raises serious questions,” said J. Robert Hunter, CFA’s Director of Insurance. “As we pointed out in letter after letter to insurance regulators throughout 2020, it was crystal clear that insurers’ premium relief was woefully inadequate. The attached document lists, with links and thumbnail descriptions, all of the letters and press releases we issued urging states to take action to reduce illegally excessive auto premiums in their jurisdictions.”
Based on automobile insurers’ financial statements data for premiums and losses and information from A.M. Best regarding insurers’ “premium relief,” the CFA claims to have shown insurers should have returned $42 billion in premium overcharges to consumers, but that, in fact, they only returned about one-third or $13 billion of that amount.
The CFA concludes that MA auto insurers received $632 million in excess profits
The CFA’s report provides a table of what the organization considers as the “Additional Personal Auto Insurance Pandemic Premium Relief Needed by State (in $Millions). The following is a reprint of the amount it lists for the New England states.
| State | ($ Millions) |
|---|---|
| Massachusetts | $632 |
| New Hampshire | $105 |
| Maine | $91 |
| Vermont | $45 |
| Rhode Island | $114 |
| Connecticut | $357 |
How to read more of the CFA’s calculations and analysis
As stated above, the findings put forth by the CFA were timed to coincide with the NAIC’s annual Summer Convention. For those individuals interested in reading the CFA’s official submission, which includes data on all 50 states and additional tables, it can be accessed here.
The Mass Division has ordered a special data call for auto insurers rate filings to account for COVID-19.”
While the CFA report excoriates most state insurance regulators for lack of activity, the report does note that Washington and New Mexico, in June and July 2021, respectively, had announced industry data calls about auto insurance losses during the pandemic “that will hopefully lead to additional premium refunds for consumers.” However, the CFA missed that in March 2021, Massachusetts already had issued a special data call in a bulletin entitled: “Property & Casualty Insurance Filing Guidance Notice 2021-A” on the subject of “Private Passenger Motor Vehicle Rate/Rule Filings for 2021.” See Agency Checklists’ article of March 16, 2021, “Division Expects Mass. Auto Carriers To Submit New Rates By June 30.”
The Division’s Guidance noted that in 2020, almost every private passenger automobile carrier filed rules for insureds to obtain premium refunds or credits because of the pandemic. However, the Guidance went further and stated that the Division expected every private passenger auto carrier to “submit a rate filing by no later than June 30, 2021, that includes 2020 claims and expense experience and a view of future loss trends.”
The Guidance further stated that each carriers’ filing “should detail how that carrier has adjusted its data based on the impact of COVID-19 on loss-related factors including ‘traffic density, vehicle speeds, availability of medical care, delays in court proceedings, etc.’”
The Guidance ends with the advice that the Division’s actuarial staff “will carefully review all filings to make sure that this experience is taken into account when calculating actuarially appropriate rates for 2021 and future years.”
Considering the statements in the CFA’s report and submission to the NAIC, Massachusetts seems ahead of the game in reviewing the alleged excess profits that the CFA has claimed that insurance regulators should order credited to policyholders or offered as future rate relief. The open question is what rate relief, if any, will the Division provide to Massachusetts motorists if it finds that the 2020 automobile insurance rates, when viewed retrospectively, did not comply with the provision of G.L. c. 175E, that no automobile insurance rates shall be “excessive.”
Agency Checklists will keep our readers posted on any actions by the Division involving auto rate filings.
