Auto Insurers Ordered to “Close the Gap” on Refunds Owed to California Drivers for Excess Premiums Charged during COVID-19 Pandemic

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By Jackson Sullivan

In an October 6, 2021 press release, Insurance Commissioner Ricardo Lara announced that the Department of Insurance (DOI) had ordered three auto insurance companies, covering approximately 20% of California drivers, to reimburse excess premiums charged during the COVID-19 pandemic. The three insurers targeted by the Commissioner’s order were Allstate Northbrook Indemnity Company, Mercury Insurance Company, and CSAA Insurance Exchange.

Analysis of data received by DOI directly from auto insurance companies showed that these three companies had the largest gap between what they had initially refunded drivers in 2020 and what they should have refunded based on previous DOI orders. “On behalf of consumers, I am out of patience,” stated Commissioner Lara. “These insurance companies have 30 days to tell us once and for all how they are going to make it right before we take further action.”

Emails sent by DOI to Allstate, Mercury, and CSAA on October 5, 2021, ordered the companies to provide additional information about planned premium refunds, the methodology used to determine refund amounts, and actions taken to determine policyholders’ annual miles driven from March 2020 through March 2021. The emails stated that this information was required “in order to determine whether a full examination or other administrative action is necessary.”

On March 19, 2020, Governor Gavin Newsom issued Executive Order N-33-20 directing all Californians to stay at home in an effort to slow the spread of COVID-19 in the state. On April 13, 2020, Commissioner Lara released Bulletin 2020-3, which recognized that “the severely curtailed activities of policyholders” had caused the projected loss exposures of many insurance policies to become overstated, especially “for policies where premiums are based partly on measures of risk such as number of miles driven.” The bulletin ordered all insurers to make initial partial premium adjustments for the months of March and April 2020 in all lines of insurance “where the measures of risk have become substantially overstated as a result of the pandemic,” including private passenger and commercial automobile insurance. Insurance companies had to notify each affected policyholder of the amount of their partial refund and provide a check, premium credit, reduction, return of premium, or other appropriate premium adjustment within 120 days. The bulletin also ordered insurers to report to DOI all actions taken, and all future actions contemplated, to adjust premiums.

On May 15, 2020, Bulletin 2020-4 extended the relevant time period for insurers to adjust premiums through to the end of May, and on December 3, 2020, Bulletin 2020-8 again extended the time period through the month of June and all subsequent months “as conditions warrant” due to the continuing effects of the COVID 19 pandemic.

On March 11, 2021, Bulletin 2021-3 revealed that data collected from insurers by DOI from March through September 2020 showed that “on average, insurance companies over-collected premium due to the lower loss exposures during the pandemic and did not return enough premium to drivers.” The bulletin stated that insurance companies needed to do more to return overstated premiums to private passenger automobile policyholders, “and continue to do so as long as the pandemic results in reduced risk of loss.”

Allstate, Mercury, and CSAA have until November 4, 2021, to respond with the information requested or risk further action from DOI.

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