APCIA says ‘let the market work’ as California commissioner demands premium refunds

The latest political assault on the insurance sector to seek funds to help pay for the impact of the coronavirus came in California this week, as the state’s insurance commissioner Ricardo Lara ordered insurance companies to return insurance premiums to consumers and businesses, and provide “much-needed financial relief” during the Covid-19 emergency.

The American Property Casualty Insurance Association (APCIA) was quick to respond. It pointed out that insurers are working hard to provide immediate relief directly to policyholders and stressed that flexibility is needed to allow private, competitive markets to work as they should do.

“Now is not the time for arbitrary calls for rate decisions. We urge all stakeholders to support flexibility in the marketplace,” said David Sampson, president and CEO of APCIA.

The insurance commissioner’s call for refunds covers premiums paid by consumers and businesses for at least the months of March and April, and would also including the month of May if ‘shelter-in-place’ restrictions continue. The refunds would fall in at least six different lines of business: private passenger automobile, commercial automobile, workers compensation, commercial multi-peril, commercial liability, medical malpractice, and “any other insurance line where the risk of loss has fallen substantially as a result of the Covid-19 pandemic”, stated the insurance commission.

“With Californians driving fewer miles and many businesses closed due to the Covid-19 emergency, consumers need relief from premiums that no longer reflect their present-day risk of accident or loss. Today’s mandatory action will put money back in people’s pockets when they need it most,” said Mr Lara.

The commissioner’s bulletin would require insurance companies to provide a premium credit, reduction, return of premium, or “other appropriate premium adjustment” as soon as possible, and no later than August 2020. Commissioner Lara has already requested at least a 60-day grace period for policyholders to pay their premiums, so that insurance policies are not cancelled for non-payment of premium during this challenging time. Together, these two actions will give consumers and businesses substantial financial relief, explained the commissioner’s statement.

Statistics show that reduced driving during the virus crisis has resulted in fewer accidents, injuries and fatalities on public highways and roads. Falling payroll and receipts because of closure orders have also dramatically reduced risk of a liability loss for businesses.

The commissioner noted that several auto insurers have recently announced voluntary premium refunds to drivers. “Today’s bulletin extends these private personal auto policy reductions to more companies and adds commercial lines while monitoring insurance companies’ compliance with California’s consumer protection laws so that refunds are not discriminatory or inadequate,” the announcement noted.

The commissioner explained that a premium refund will not require prior approval by the Department of Insurance if an insurance company follows methods outlined in the commissioner’s bulletin, such as using an average percentage based on estimated change in risk or exposure.

Commissioner Lara also ordered insurance companies to report back to the Department of Insurance all premium refunds they have issued or expect to issue within 60 days, in order to provide oversight and ensure companies are complying with the bulletin.

“I applaud efforts made by insurance companies to date that have offered grace periods and flexibility to consumers and businesses during this national emergency. We must do more to help our hardworking families and small businesses,” added Mr Lara.

The APCIA said Mr Lara’s bulletin is inappropriate, pointed out that insurers are already doing plenty to support their policyholders, and added that such relief efforts are the business of federal not state government during such a crisis. Above all, it said the market should be allowed to work as it should during such a time.

“Over the last two weeks, insurers have announced billions of dollars in premium rate relief to their policyholders. Insurance is a data-driven industry. Rates are continuously adjusted based on losses and claims costs. If regulators allow insurers flexibility, private competitive markets will work to the benefit of consumers,” said Mr Sampson.

“For example, the impact of Covid-19 on driving patterns is reflected in the data some companies are seeing on crash frequency and severity, and a number of companies have already responded. Some commercial lines policies, such as workers compensation, are audited each year to reflect changes in risk and claims, so premiums are adjusted at that time,” he continued.

“Now is not the time for arbitrary calls for rate decisions. We urge all stakeholders to support flexibility in the marketplace. California has the most complex regulatory structure in the nation. The department should be providing guidance to companies that are trying to implement premium reductions within the confines of Proposition 103,” added Mr Sampson.

The insurer representative listed a number of actions that insurance companies are already taking voluntarily to help policyholders, including:

• Working with closed commercial businesses to provide premium benefits that reflect the current environment
• Refunds and discounts for drivers who are logging less miles during shelter-in-place orders
• Flexible payment solutions for families, individuals, and businesses – providing additional time to make payments
• Waiving insurance premium late fees for families, individuals, and businesses
• Pausing cancellation of coverage for personal and commercial lines because of non-payment and policy expiration
• Suspending personal auto exclusions for restaurant employees who are transitioning to meal delivery services using their personal auto policy as coverage
• Adding more online account and claims services for policyholders
• Shifting more resources to anti-fraud and cybersecurity units, in recognition of the bad actors who will prey on victims during times of crisis
• Adopting new technologies and remote solutions to minimise any interruptions in service, collision repair and claims handling, such as using virtual inspection technology to complete damage inspections.

“Only the federal government can be the bridge for a crisis of this proportion. The APCIA supported the recently enacted federal assistance programmes that will deliver aid directly to vulnerable business communities, particularly affected small businesses. The APCIA also joined a broad coalition of our customers to advance the Covid-19 Business and Employee Continuity and Recovery Fund, as an additional tool to keep businesses solvent and employees working. We will be advocating alongside them for inclusion of the fund in the next phase of economic stimulus to speed payments to businesses in need,” added Mr Sampson.