So Your Company Wants to Return Auto Premium Because of COVID-19? Better Check With Your States First

As insurers and regulators grapple with the cascading effects of the COVID-19 pandemic, one aspect of ‎the crisis that is just beginning to get attention is the impact on the auto insurance market due to ‎dramatically lower mileage (and therefore claims) because of stay-at-home orders across much of the ‎United States. With millions of their policyholders being forced out of work, and millions more facing ‎dire financial straits because of the ongoing crisis, auto insurers have become active in looking to ‎return excess premium to their customers to help them through these trying times. This is a laudable ‎goal, and something that regulators are encouraging. The question then for insurers is how to ‎accomplish getting premium refunded to their policyholders without running afoul of the laws of the ‎states in which they operate.‎

As a first step, auto insurers should be in touch with their regulators regarding their plans. This should ‎be accomplished through their normal contacts, or through any temporary emergency channels the ‎regulators have set up in the meantime. Companies should monitor the state DOI websites for press ‎releases, notices, and bulletins which may provide more information.‎

While of course it is necessary for companies to design a financially sound refund plan, two other ‎important aspects to keep in mind are compliance with anti-discrimination and anti-rebating laws. The ‎two primary refund methods which are already being seen in the marketplace are for companies to ‎refund or credit a percentage of an insured’s auto premium from a set period, or a refund or credit of ‎a flat payment per vehicle. Allstate for one has chosen to do its program by using the former method, ‎while American Family has chosen the latter. Both methods apply across the board to all policyholders to help protect against possible discrimination concerns by regulators. The flat ‎payment method may be easier to administer internally. As for rebating, normally it is not permissible ‎in most jurisdictions to rebate premium to customers with some exceptions. Be sure to check with ‎each jurisdiction to see if they are waiving regulatory scrutiny of these programs for rebating during ‎this crisis, or are addressing the issue in other ways like requiring companies to make the refund ‎program part of the policy through a form filing.‎

As insurance is a state-regulated industry, there naturally will be variations in what the nation’s ‎insurance departments want from companies planning refunds, in terms of filing requirements and ‎methods of returning premium. Several states have already issued guidance on what they expect, and ‎more are expected to do so in the coming weeks as departments are more able to address these ‎issues after spending the first month of the crisis on higher priority issues like health and business ‎interruption insurance. As always, the best practice is to check first and get the local regulator’s ‎blessing before proceeding.‎

Among the issues to address with regulators are:  1.) Do you have a preferred method of refund? (% ‎returned from amount of premium paid over a certain period, flat figure per vehicle, credit vs. refund ‎payment, etc.); 2.) Is our proposed method acceptable?; 3.) Will you be requiring a filing before or ‎after we proceed with the refunds, and what form should it take?; 4.) Will you be expediting review of ‎any refund filings?; and 5.) Will you be exempting refund programs such as ours from anti-rebating ‎laws? Regulators considering publishing notices on this topic would be most helpful if they address ‎these questions in advance. Insurers engaging in a dialogue with regulators on these important issues ‎will provide comfort to both sides. This is clearly one instance where the regulators want to help ‎companies provide relief to their constituents, and cooperation is in everyone’s best interest. Also, it is ‎a great opportunity for companies to build customer loyalty, show they care, and to establish or to ‎improve their relations with key regulators.‎

As more and more companies announce refund programs and seek to “one up” each other with the ‎generosity of their plans, the focus eventually will turn to those companies that have not stepped ‎forward voluntarily.  At least one commissioner so far, Commissioner Ricardo Lara from California, has ‎indicated that his department will be monitoring to see which companies participate, and which may ‎be holding onto what his office may perceive as a premium windfall at the end of the day.‎

As of the date of publication of this post, the following states have issued bulletins, notices, or ‎statements regarding auto premium refunds.  More information can be found at the listed ‎departments’ websites.‎

AlabamaBulletin 2020-06 (4/8/2020)‎[1]

Alaska:  Bulletin B20-10 (3/20/2020)‎[2]

California:  Commissioner Lara Statement (Published in San Jose Mercury News 4/8/2020)‎[3]

Colorado:  Bulletin B-5.39 (4/6/2020)‎‎[4]

Connecticut:  Department Notice Expressing Support (4/6/2020)‎[5]

Delaware:  Statement of Commissioner Support (4/7/2020)‎[6]

Illinois:  Has not issued a bulletin or notice to date, but indicated to the author that they are ‎requesting filing of an endorsement and a manual page, and are expediting review of such filings. They ‎have not indicated a preferred refund method to date, but encourage companies to contact them ‎regarding their plans.‎

Kansas:  Statement of Support from Commissioner (4/8/2020)‎[7]

Louisiana:  Press Release with Commissioner Support (4/7/2020)‎[8]

Maine:  Commissioner Statement of Support (4/6/2020)‎[9]

Maryland:  Bulletin 20-12 (3/23/2020)‎[10]

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