Consumer Groups Call for Lower Auto Rates as Driving Lessens Amid Stay-At-Home Order

Millions of people across the country are at home as the nation tries to flatten the curve. While the roads aren’t empty, traffic has decreased significantly. Nationally, personal travel dropped by 30% from Feb. 28, 2020, to March 20, 2020, according to a report by Inrix, a company that uses car and phone navigation systems to analyze data.

Source: Forbes - Jason Metz | Published on April 2, 2020

Los Angeles California freeways empty during 2020 Coronavirus pandemic.

Less traffic and fewer miles driven typically translate to fewer car accidents and fewer car insurance claims. That means more money into insurers’ pockets while they charge rates based on previous levels of accidents and claims.

Are we now overpaying for auto insurance?

Some consumer groups say yes and are calling for car insurance refunds for consumers.

The Consumer Federation of America (CFA) and the Center for Economic Justice wrote a letter to state insurance commissioners on March 18, 2020, urging them to direct car insurance companies to give consumers “offset payments,” or refunds.

State insurance departments are tasked with regulating insurance companies and making sure that rates charged to consumers are not excessive. With Americans now sheltering in place, “consumers will be paying unreasonable and excessive premiums based on outdated estimates of miles driven,” say the consumer groups.

They argue that all car insurers, directly or indirectly, use mileage as a factor in rates. Drastically reduced driving as a result of COVID-19 can “result in savings to the system that can be quantified and returned to American consumers.”

“Windfall profits for auto insurers and excessive auto insurance premiums should not be another harm visited upon consumers from COVID-19,” says Robert Hunter, director of insurance for the CFA, in a statement.

In California, the Consumer Federation of California Education Foundation (CFCEF) has filed a petition with the California Insurance Commissioner requesting insurance companies recalculate rates for customers based on reduced mileage during the COVID-19 pandemic. It also requests premium offset payments, reduced installment payments or refunds of excessive premiums.

Furthermore, the CFCEF petition calls on the California Insurance Commissioner to:

Establish rules that require car insurance companies to notify policyholders of their right to request a premium reduction when an emergency forces them to stay home.

Immediately order insurance companies to notify policyholders of the right to get a rate reduction due to decreased driving under Gov. Gavin Newsom’s March 19, 2020, “Stay at Home” order that’s currently in effect.

Car Insurance Rates Already Account For Fewer Claims

Robert P. Hartwig, Director at the Risk and Uncertainty Management Center at the Darla Moore School of Business at the University of South Carolina, disagrees that offset payments or refunds are necessary. Hartwig says that the methodology for determining car insurance rates is already sensitive to changes in the number and amounts of claims.

“The methodology used in all 50 states was intentionally designed to adjust to the frequency of claims,” says Hartwig. He explains that rates are established using multiple years’ worth of data and that rates gradually change both up and down over time, as trends in claims change. If people are driving less, there will be fewer accidents and fewer claims, and rates will be adjusted accordingly in the future.

Future auto insurance rates are “a direct function of the claim experience and cost,” says Hartwig.

Insurance Companies Offer Some Options

At this time, state departments of insurance have not ordered insurers to reduce or refund car insurance premiums. However, some states have asked car insurers to give longer grace periods for premium payments. And many insurers are announcing their own options for extended grace periods and payment plans. For example:

California Insurance Commissioner Ricardo Lara issued a notice asking all insurance companies to provide policyholders with at least a 60-day grace period and to ensure policies are not cancelled for nonpayment of premium.

Connecticut Insurance Commissioner Andrew N. Mais called on all insurance companies operating in the state to provide at least a 60-day grace period without interest or penalty.

North Carolina Insurance Commissioner Mike Causey asked the state’s insurance companies to be “economically flexible” with policyholders, including relaxed due dates for premium payments, extended grace periods, waiving late fees and penalties, and allowing payment plans to avoid lapses in coverage. The commissioner asked insurance companies to cancel or non-renewal policies only when all other efforts have been exhausted.

You can check with your state department of insurance to see if insurers have been directed to provide some form of financial relief. It’s a good idea to check regularly as this situation develops.

If you’re having trouble paying your car insurance premium, contact your auto insurance company and ask if they can work with you on payment. Options involve extended time and waiving late fees, not forgiving payments.