This week, California Department of Insurance (CDI) Commissioner Ricardo Lara ordered property casualty insurers to refund insurance premiums to consumers and businesses for the months of March and April due to state and local stay-at-home restrictions. The California order is the first such order in the nation, and it is likely to be followed with similar orders in other jurisdictions.
According to Commissioner Lara, the rationale for the order is that many California drivers are driving fewer miles than insurance companies anticipated when setting rates, businesses are filing fewer claims, and insurers are incurring significantly lower losses overall. The commissioner says the order “will put money back in people’s pockets when they need it most.”
Insurers offering the following lines of insurance are ordered to comply:
- Private passenger automobile
- Commercial automobile
- Commercial multi-peril
- Commercial liability
- Medical malpractice
- Workers’ compensation
- Any other insurance line where the risk of loss has decreased substantially as a result of the COVID-19 pandemic
Insurers are given until Aug. 13, 2020, to comply with the order. The order, as written, provides insurers flexibility in complying with its direction that the adjustment can be based on a reassessment of “the classification and exposure bases of affected risks,” and the refund can be in the form of a credit, premium reduction, refund of premium or other adjustment. The insurers are required to provide each policyholder with a statement showing, among other things, the amount and form of the refund, as well as an explanation of the basis for the adjustment.
The order also requires insurers to submit a report to the CDI within 60 days that provides the following information:
- Percentage of refund applied
- Aggregate premium prior to, and subject to, application of refund
- Aggregate premium refund
- Average premium before and after refund
- Average percentage of refund, applied to each policyholder
- Number of in-force policies
- Number of policyholders receiving refund
A number of insurers voluntarily initiated similar refunds in the past few weeks. The order is intended to mandate uniformity throughout the industry. Details of the CDI order can be found here.
This is a critical time for companies to assess their risk and take the steps necessary to keep pace with the extraordinary economic effects of the COVID-19 pandemic.