California auto insurers overcharged $5.5bn during pandemic

An investigation by the Consumer Watchdog has found that California auto insurers overcharged drivers by $5.5bn in 2020

The pandemic’s impact on driving is well known: with working from home broadly implemented and all non-essential stores closed, people had fewer reasons to travel by car.

A noticeable consequence of this has been the proliferation of pay-per-mile insurance providers, which allow customers to save money by only paying for the exact distances traveled. It would seem apparent, therefore, that less frequent car travel would result in fewer claims and therefore cheaper policy rates. 

However, focusing on the Californian market, the Consumer Watchdog found that auto insurers did not reduce costs despite an 11.8% reduction in company loss ratios. As such, drivers have actually been overcharged a total of $5.5bn.

Insurance payouts withheld

By California law, insurance companies must calculate their return on net worth by premiums and investment income. In this instance, the final figure was twice the annual maximum allowed.

Insurance Commissioner Ricardo Lara has apparently been aware of this situation since April 2020 and issued bulletins for consumer refunds accordingly. Insurers were granted the ability to calculate themselves how much they should return, yet the top 15 companies (representing 70% of the US market) have only returned $1.9bn (34.5%) of total owed.

Although the report stated that data of any 2021 overcharges is not currently available, the pandemic’s pronounced effect on traffic for the early part of the year suggests the $5.5bn total could grow significantly.

Post-COVID: Evening out the score

Carmen Balber, Executive Director of Consumer Watchdog, tacitly condemned insurers for obstinately holding on to money that is not rightfully theirs. 

"Asking insurers to calculate their own refunds hasn't resulted in consumers getting what they're owed. Insurance companies are hanging on to billions of drivers' dollars that should be helping Californians get back on their feet as we emerge from the pandemic,” she said.

The strain on insurers and reinsurers during the pandemic has been palpable; the inclination for insurers to retain funds to weather the storm is understandable, but from a customer relationship perspective unacceptable. 

Insurance companies are required to justify their rates as a legal measure against price gouging. However, from a purely empathetic perspective, companies must realise that their customers are also struggling and need support from their policy providers now more than ever.

"Many Californians are struggling to pay their bills in the aftermath of the shutdown. Insurance companies cannot be allowed to keep billions in illegal overcharges," concluded Balber


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