California Says Car Insurers Overcharged During the Pandemic

But on Thursday, California Insurance Commissioner Ricardo Lara said that insurers’ premium-refund programs for vehicle owners in the state on average should have been nearly double what the industry shelled out from last March through September. The regulator gave auto-insurance companies until April 30 to detail plans for returning premiums to California policyholders that the department contends were over-collected in 2020.

The action comes weeks after numerous insurers posted improved fourth-quarter results for their car-insurance units. It indicates that the industry hasn’t put behind it the bad optics—surging profits from Covid-19 as many people financially struggle—that emerged in the spring when government-mandated lockdowns marooned customers at their homes. In particular, fender-bender claims have declined.

California’s move could give momentum to a campaign by consumer organizations for other states to act aggressively, too. Since the early days of the pandemic in mid-March 2020, the Consumer Federation of America and Center for Economic Justice have petitioned state insurance departments to push insurers to share any large profits with customers. In December, the two groups asked departments “to require all auto insurers to issue a second round of premium refunds for consumers.”

California also is also taking a look at commercial insurers. Mr. Lara said he is requiring carriers that sell policies to businesses to provide data about claims on this coverage back to last March.

As businesses were under lockdown, many posed less risk to insurers than under normal circumstances, owners and insurance agents have said. This is because they didn’t have patrons on their premises to slip and fall, for instance, and closed restaurants weren’t at the same risk for kitchen fires.

“If the data shows that insurance companies overcharged our businesses, I am going to be mandating them to return premium, especially to small businesses that have borne the brunt of pandemic closures,” Mr. Lara said in a news release.

Auto insurers have said they are cautious about additional large refunds because of uncertainties about driving patterns ahead, including the fact that traffic fatalities rose last year.

“This suggests that driver behavior deteriorated rapidly and significantly during the pandemic,” said Loretta Worters, a spokeswoman for the Insurance Information Institute.

Accidents that still are occurring often have severe damage, which industry executives generally attribute to faster driving speeds.

Miles driven may be returning to pre-pandemic levels following last year’s 51% decline, according to a report in February from Arity, Allstate Corp.’s telematics and driver-data information subsidiary. Based on data sets including those from both mobile apps and onboard devices that record mileage, Arity said “current miles driven is now close to normal.” It cited such potential factors as social “distancing fatigue.”

California’s action on car insurance followed a review of data submitted by the insurers. The review found that insurers “continued to overcharge consumers despite drastically reduced risk of accidents and loss due to the ongoing pandemic,” the state insurance department said in the release.

From last March through September, insurance-company groups returned on average 9% of Californians’ auto premiums, while the review concluded they should have returned 17%. The biggest insurers’ programs ranged from 10% to 22% in slashed premiums, the department said.

The department said various types of accident claims fell at least 40% during the seven months, compared with the year-earlier period.

The state said the premium-return programs saved Californians more than $1.75 billion.

Across the U.S., car insurers’ premium-refund programs have varied widely. The biggest insurers typically slashed 15% to 20% of customers’ premium bills for a couple months, but some ran for longer periods.

Write to Leslie Scism at [email protected]