Auto insurance companies pay back $6.5 billion, but is it enough?

Auto insurance companies have pledged to refund or credit drivers more than $6.5 billion over the next two months due to the coronavirus pandemic but some insurers are treating policy holders more equitably than others, according to a report card issued this week by the Consumer Federation of America.

The CFA and Center for Economic Justice first called on insurers and state regulators to provide financial relief to policy holders nearly a month ago. With stay-at-home orders and other social distancing measures intended to limit the spread of the coronavirus, drivers are driving up to 50% less in some states, according to Allstate, and crashes have dropped by more than 50%. As a result, auto insurers are paying out far fewer claims. 

The response has been a $6.5 billion payout from companies that represent more than 82% of all auto insurance sold in America. 

It’s not enough, says the CFA.

“We applaud the many insurance companies that have recognized that they cannot sit on policyholder premiums while their customers sit at home,” J. Robert Hunter, director for the CFA, said in a statement. “But consumers might need double this amount to balance how much they pay with how much they drive this year, and we expect companies and commissioners to help make this right as Americans struggle through this crisis.”

Some companies are doing right, based on the CFA and CEJ’s three-part assessment. The amount of relief, time frame of it, and delivery method all played a part in the grades.

State Farm, who recently promised a dividend to customers of about 25% of a policy holder’s premium from March 20 through May 31, earned a grade of “A.” American Family also earned an “A” for a $50 refund for each covered vehicle. Allstate earned a “B.”

Progressive, Farmers, USAA, Liberty Mutual, Travelers, and Nationwide were all in the “C” range. 

On the other end of the grading curve, Geico received a “D-” despite pledging $2 billion in relief. According to the CFA, Geico is requiring customers to renew their policies in the next two months before any savings kick in. 

Erie is the only insurer of the 25 assessed to get an “F,” for pledging relief but “actually only promising to cut rates” in the future, according to the CFA. 

Moving forward, drivers will get more money back if insurers listen to recommendations from the CFA and CEJ. A 50% drop in claims should result in a 39.4% reduction in premiums. Additionally, the CFA and CEJ recommend that credit scores should no longer be factored into premiums during a crisis that has seen unemployment rates skyrocket.

“Insurance credit scoring has become a clearly unfairly discriminatory underwriting, tier placement, and rating factor, and should not be allowed when Americans start climbing out of this crisis,” Doug Heller, CFA’s insurance expert, said in a statement.

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