In an unprecedented move, California Insurance Commissioner Ricardo Lara has ordered insurers that support “workers’ compensation, private passenger auto, commercial auto, commercial multi-peril, commercial liability, medical malpractice and any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic.” It should be noted that no policies can be cancelled and at the same time all premiums are to be returned for March, April and potentially May.
How the market will now correct itself in the largest insurance market in the US? Will other states follow suit?
Detail from our friends at the Insurance Journal…
Tuesday, April 14, 2020
Insurance Commissioner Orders Companies to Pay Back Premiums Due to COVID-19 Fallout
California Insurance Commissioner Ricardo Lara on Monday ordered workers’ compensation carriers and insurers in at least five additional lines to pay back premiums because of the economic fallout of the COVID-19 pandemic.
Premiums for March and April must be returned, with May premiums also on the table if the state’s stay-at-home order continues, according to Lara’s declaration.
Other insurance lines that must pay back premiums under Lara’s order include private passenger auto, commercial auto, commercial multi-peril, commercial liability, medical malpractice and “any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic.”
“With Californians driving fewer miles and many businesses closed due to the COVID-19 emergency, consumers need relief from premiums that no longer reflect their present-day risk of accident or loss,” Lara said in a statement. “Today’s mandatory action will put money back in people’s pockets when they need it most.”
The news also arrived on the eve of a Workers’ Compensation Insurance Rating Bureau meeting, where Classification and Rating Committee members are scheduled to vote on three proposed regulatory changes to send to Lara in response to the COVID-19 pandemic.
Dave Bellusci, executive vice president and chief actuary for WCIRB, wrote in an email that issues related to premium returns were “not within the WCIRB’s role, which focuses on advisory pure premium rates, experience modifications, payroll reporting. etc.”
Lara’s order requires insurers to provide premium credits, reductions, returns or “other appropriate premium adjustment” by August 2020. The department has requested a minimum grace period of 60 days for policyholders to pay premiums so that policies are not canceled for nonpayment, according to the news release.
The Department of Insurance did not respond to requests for comment on how the order would be carried out with regard to workers’ compensation premiums or whether employers and their insurers still were exposed by having employees work from home.
David A. Sampson, president and CEO of the American Property Casualty Insurance Association, said Monday that insurance companies were finding ways to help customers before Lara made his announcement.
Those arrangements include refunds and discounts for drivers who are traveling fewer miles, waiving late fees and pausing coverage cancellation, Sampson said.
“Over the last two weeks, insurers have announced billions of dollars in premium rate relief to their policyholders,” Sampson said in a statement. “Insurance is a data-driven industry. Rates are continuously adjusted based on losses and claims costs. If regulators allow insurers flexibility, private competitive markets will work to the benefit of consumers.”
The COVID-19 outbreak’s impact on driving patterns has already forced companies to respond and adjust, Sampson said. He added that some line policies, such as those found in workers’ compensation, are audited every year and allow for premiums to be adjusted.
“Now is not the time for arbitrary calls for rate decisions,” Sampson said. “We urge all stakeholders to support flexibility in the marketplace. California has the most complex regulatory structure in the nation. The department should be providing guidance to companies that are trying to implement premium reductions within the confines of Proposition 103.”
California voters passed Prop. 103 in 1988. It requires approval from the Department of Insurance before carriers implement rates for most property and casualty lines. The initiative does not apply to workers’ compensation.
Aside from actions already taken by auto insurance companies, other lines including workers’ compensation are likely to self-adjust in response to the COVID-19 crisis without government intervention, said Robert Hartwig, director of Risk and Uncertainty Management Center at the University of South Carolina’s Darla Moore School of Business.
“In terms of workers’ comp, premiums paid will be largely self-equilibrating irrespective of proclamations from insurance departments,” Hartwig wrote in an email. “Workers’ comp is an audited line, meaning insurers routinely examine policyholder (employer) payroll exposure to ensure that the premium paid matches up with the exposure and risk assumed by insurers. Given that payrolls for many/most employers in the U.S. will fall below expectations for renewals prior to March 1, insurers will wind up refunding some premiums and/or simply collect less in premium over the next several quarters.”
Each insurance line differs by risk, Hartwig said, and a broad-brush approach by an outside party might not be the best solution.
“One wild card is how fast all of this will bounce back,” he wrote. “Insurers will need to be judicious in any rebates/discounts offered, offering them periodically only as justified based actuarial determinations — not in response to proclamations by regulators and legislators.”
In addition to ordering the premium return, Lara also ordered carriers to file a report of all actions taken as well as contemplated future actions to refund premiums. The report must include monthly and overall totals for the percentage of refunds applied, aggregate premiums refunded, average percentage of refunds and the number of policyholders receiving a refund.
Author: Paul Hughes
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