Auto Insurers Are Making Windfall Profits from COVID-19; Consumer Advocates Call on Companies to Provide Refunds, Lower Premiums to Californians Who Have Stopped Driving

California Insurance Commissioner Petitioned to Take Action

Sacramento – Automobile insurance companies are making windfall profits from Californians idled by the Coronavirus Stay at Home Orders and should refund or credit premiums to motorists, consumer advocates said today in a petition filed with the California Insurance Commissioner.

The Consumer Federation of California Education Foundation, a non-profit organization, pointed out that millions of California workers, students and parents have been virtually confined to their homes for a period that may extend for several weeks or longer 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’s voter-enacted Proposition 103, 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 of an impact on premiums than miles driven.

“The roads are empty, and the owner of Geico, California’s second largest automobile insurer, 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 that 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 any California local officials issued Shelter 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 18, Governor Newsom issued a statewide Stay at Home Order impacting 40 million Californians. Earlier in the week, similar orders issued by numerous 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 automobile traffic, which has reduced bridge toll revenues2. The California Highway Patrol and news reports3 have noted a dramatic reduction in cars on the road from San Diego through the Bay Area and elsewhere. One San Diego Area CHP officer stated that the decrease in weekday commute traffic last week resembled holiday traffic patterns.4

In China where home confinement orders were issued in January, automobile insurance executives are witnessing a significant drop in auto-accident related insurance claims, and stock analysts have raised stock price targets for publicly traded auto insurance companies.5

California regulations make it unlawful to charge motorists in excess of rates that cover the costs of insurance, including losses resulting from accident claims, along with reasonable profits. The Insurance Commissioner can take action to block excessive rates and premiums.

The petition filed by the Consumer Federation of California Education Foundation requests the Commissioner to:

  • Establish rules requiring insurers to notify their 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 their customers of the right to get a reduction resulting from a reduction in driving under the COVID-19 Stay at Home orders.

“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 very quickly get premium credits to the millions of Californians who are not driving and not causing accidents. Also, we have asked the Commissioner to begin the process of establishing new rules to ensure an ongoing mechanism for providing relief in this and future crises.”

According to the Bureau of Labor Statistics, only nine percent of the lowest paid quartile of workers have jobs that can be done from home. This rises to 62% that are able to work from home among the top quartile of workers by pay.6

Lower paid workers in service industries, retail, hospitality and similar jobs are the least likely to have paid family leave or other benefits.7 As schools and daycare centers shuttered last week, many workers who may have a job that remained open were also forced to stay at home to care for their children. Millions of college students who juggle jobs and education, and who commute to classes at community colleges and state universities, are now staying at home in face of 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 can use any financial help they can get. Automobile 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:

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.