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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.
Alabama: Bulletin 2020-06 (4/8/2020)
Alaska: Bulletin B20-10 (3/20/2020)
California: Commissioner Lara Statement (Published in San Jose Mercury News 4/8/2020)
Colorado: Bulletin B-5.39 (4/6/2020)
Connecticut: Department Notice Expressing Support (4/6/2020)
Delaware: Statement of Commissioner Support (4/7/2020)
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)
Louisiana: Press Release with Commissioner Support (4/7/2020)
Maine: Commissioner Statement of Support (4/6/2020)
Maryland: Bulletin 20-12 (3/23/2020)
Massachusetts: Statement of Commissioner Support (4/10/2020)
Missouri: Bulletin 2020-08 (4/10/2020)
North Carolina: Press Release (4/9/2020)
North Dakota: Commissioner Support for Refunds (4/6/2020)
Pennsylvania: Notice (3/31/2020)
Vermont: Press Release with Commissioner Support (4/7/2020)
Washington: Press Release with Commissioner Support (4/7/2020)
Visit our COVID-19 Resource Center often for up-to-date information to help stay informed of the legal issues related to COVID-19.