Car insurers’ pandemic windfall could have paid Illinois drivers $99 more per car in ‘coronavirus relief’ refunds

With people driving less during the COVID-19 pandemic, automobile insurers came out ahead an estimated $29 billion last year compared to previous years, according to a new analysis by two consumer groups.

Some insurers made a show of sharing those savings by sending refund checks to drivers more than a year ago. But they kept much of the coronavirus windfall for themselves.

That’s according to an analysis by the Consumer Federation of America and Center for Economic Justice.

At the request of the Chicago Sun-Times, they also looked at the amount of money automobile insurers took in last year from Illinois drivers, the amount that was refunded and the additional revenue resulting from fewer accident claims because more people were working from home.

In Illinois, they found that the insurers’ coronavirus windfall amounted, on average, to what could have been an additional refund of about $99 per car for 2020, says Douglas Heller, an insurance expert for the consumer federation.

With the onset of the pandemic, “They were using premiums that had no relationship to the world as it existed,” Heller says of car insurance companies.

The analysis found that auto insurers nationally ended 2020 with “windfall profits of at least $29 billion” based on the premiums they took in and claims they paid compared with the average of four previous years.

Industry representatives dispute that. They say the analysis paints an incomplete picture of what remains a fast-changing situation and doesn’t take into account other costs they incurred.

Karie Valentino is among Chicagoans still working from home nearly a year and a half after many offices were closed in March 2020. Valentino, a medical malpractice attorney who lives in Ravenswood, says she used to drive her Audi Q5 sport-utility vehicle to in-person depositions and site inspections — but no more.

“Obviously, once COVID hit, I was going nowhere,” Valentino says. “It’s really reduced my driving significantly.”

She expects she’ll keep working remotely at least some of the time even after the pandemic ends.

“I think that they should” give more refunds, she says of the insurance companies, “especially if they’re not paying out on claims like they used to.”

Anthony Vazquez / Sun-Times file

After a flurry of heavily promoted refunds in the spring of 2020, most Illinois consumers haven’t seen much change in what they pay for car insurance.

And, with so many unknowns, companies aren’t likely to drastically slash rates now, only to face the possibility of needing to raise them later, angering customers.

Provided

Bloomington-based State Farm touted its coronavirus relief through dividends to policyholders in the spring of 2020 and rate cuts later on. But business during the pandemic was still so good that State Farm gave Michael Tipsord, its chairman, president and chief executive officer, an $18 million bonus on top of his $2.1 million salary in 2020, nearly doubling what he made in 2019, company filings show.

Altogether, State Farm paid more than $44 million in bonuses to top executives in the pandemic year of 2020 — more than double the amount in 2019.

Unlike Illinois, California law allows its insurance commissioner to require insurers to make refunds when claims are lower than expected. As a result, State Farm paid $400 million in pandemic refunds covering June 1 to Dec. 31, 2020 to California consumers “due to better than anticipated claims results,” the company announced in March. The refunds amounted to about $100 per policy.

State Farm declined an interview request. In a written statement, a company spokeswoman says: “We continue to monitor driving behaviors to ensure the rates we have in place reflect anticipated driving and claim volume and to minimize the impact to customers as much as possible.”

Illinois’ other automobile insurance giant, Northbrook-based Allstate, boosted total compensation to Thomas Wilson, its chief executive officer, by 7.7% in 2020 — to $21.1 million — as the pandemic dragged on.

Allstate also went on a buying spree, recently acquiring National General Holdings Corp. for $4 billion and Safe Auto for $300 million.

An Allstate spokesman said the insurer was the first to make pandemic refunds and has since reduced prices by 5% in Illinois. The company also offers a new “pay-per-mile” policy for people who drive less.

According to the consumer groups’ analysis:

• From 2016 to 2019, the amount that auto insurers paid in claims nationally averaged 67.4 cents of every premium dollar collected. In 2020, with the pandemic shutdowns limiting driving, the amount spent on claims plummeted to 56.1 cents per dollar taken in.
• As a result, insurers collected $42 billion more in 2020 while providing only $13 billion in what they termed “premium relief” during the early stage of the pandemic.

The consumer groups used insurers’ financial statement data for premiums and losses and additional analyses by A.M. Best, a credit-rating agency, regarding insurers’ givebacks.

Insurance industry representatives say the consumer groups’ analysis wrongly presumes that all of the extra money was pocketed as profits. The American Property Casualty Insurance Association, an industry trade group, says insurers spent much of it on overhead such as legal fees, claims handling, agent commissions and taxes and regulatory fees. The group also says that inflation has made car repairs and replacement parts more expensive.

At the same time, a rise in traffic fatalities — up 7% in 2020 over 2019 nationally, according to federal statistics the group points to — and rebounding traffic levels this year have insurers worried about higher per-accident costs in the future.

“Had unjustified premium cuts been ordered last year, it would simply have put additional upward pressure on rates this year because of the rapid increases in miles driven and the greater rate of crashes and losses,” says David Snyder, vice president of the insurance association.

In the highly competitive auto insurance marketplace, Snyder says, if people keep driving less, prices will go down — eventually.

“They tend to even out over time,” he says.

Dale Porfilio, a Chicago actuary and chief insurance officer for the Insurance Information Institute, another industry group, says insurers’ investment income — what they make by investing premiums — has taken a hit in recent years with historically low interest rates.

Some states’ regulations regarding the insurance industry lean more heavily pro-consumer than they are in Illinois. In addition to California, Michigan, New Jersey and New Mexico all required insurers to make refunds during the spring of 2020 — and California kept requiring refunds after that first wave.

With no law mandating similar consumer relief when premiums far outpace claims, the Illinois Department of Insurance merely suggested that insurers share their pandemic windfall with consumers. The state agency issued two bulletins in 2020 “to encourage insurance companies to provide relief to assist Illinois consumers during the pandemic,” a spokeswoman says.

“I hope there’s a lawmaker that’s calling the insurance commissioner and saying, ‘How do we change that law?’ ” the consumer federation’s Heller says. “Because this is really unacceptable.”

The consumer groups have been urging regulators around the country to do more.

“As we pointed out in letter after letter to insurance regulators throughout 2020, it was crystal clear that insurers’ premium relief was woefully inadequate,” says J. Robert Hunter, the consumer federation’s director of insurance, who is a former Texas state insurance commissioner.

Meanwhile, many workers — especially in office-based professions — still have no idea when they will be returning to their workplaces. In Chicago, a citywide indoor mask mandate took effect Friday.

Anthony Vazquez / Sun-Times

In an interview with the Sun-Times’ “Fran Spielman Show” this past week, Michael Fassnacht, chief executive officer of World Business Chicago, predicted that many Chicago businesses will stay on a hybrid schedule even after the pandemic ends. Nearly 18 months into the pandemic, only about 30% to 40% of the downtown workforce has returned to their offices at least three days a week, according to Fassnacht.

Matty May, who works in advertising sales and lives in North Center, used to work downtown every day but hasn’t been commuting since March 2020. The firm she works for recently went through a merger and leased different office space. At first, employees thought they’d return by late September, but, with the spread of the more contagious Delta variant, that’s been pushed back.

“We are not allowed back in, so I’m still working from home,” May says.

The vehicle she shares with her husband sits mostly unused. She says she’d love to catch a break on her insurance.

“I do think it would be fair if people who aren’t driving as much would save a little,” she says.