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WGLT's reporting on the coronavirus pandemic, which began in McLean County in March 2020.

Expert: Regulators Need To Help Spur Auto Insurer Refunds

State Farm HQ building
Ralph Weisheit
State Farm, based in Bloomington, is the largest auto insurer in the U.S.

An insurance industry expert says state regulators should take a more aggressive approach in forcing companies to refund premiums to policyholders who are driving less because of the coronavirus.

Daniel Schwarcz, a law professor at the University of Minnesota, said insurers like State Farm are already facing market and consumer-protection pressures to give back money to customers. Schwarcz said regulatory pressure is needed too.

“It’s not just that they’re benefitting from the coronavirus,” Schwarcz said. “But they’re benefitting from the coronavirus entirely through happenstance, because of the way insurance works, so prices are set well before claims are known.”

Some insurance companies have proactively announced refunds, including Allstate, Libert Mutual, and American Family.

Bloomington-based State Farm, the largest auto insurer in the U.S., hasn’t publicly announced its plans. A spokesperson told WGLT that it’s “closely monitoring our automobile insurance loss trends and are considering how best to take this into account and return value to our auto insurance policyholders. We expect a decision in this regard by the end of the week.”

The response from insurers has been uneven, Schwarcz said. Some have acted, while others have not, and there are differences among those offering relief, he said.

“Allstate was smart. They got a lot of PR by seeing the writing on the wall,” he said.

Still, Schwarcz said he’d like to see regulators more involved. The challenge for even those companies that proactively give back money, he said, is making sure the amount of returned premium is the right amount.

“I don’t know, and I don’t think Allstate has clearly stated, that the amount being refunded reflects the full extent to which the company is benefiting from reduced driving patterns,” he said. “Premiums were paid for one risk. And that risk is now entirely different.”

Schwarcz said most state insurance regulators have the authority to review rates and act on those deemed excessive. Illinois is an outlier, he said. Auto rates are filed but are not subject to approval or disapproval of the state’s insurance commissioner.

Returning premium would not be an act of corporate generosity, Schwarcz said.

“That would in effect be a stimulus. But it would be a stimulus by allowing people to reap one of the benefits of this virus—which is people are driving less,” he said.

WGLT has requested a comment from Country Financial, a smaller insurer also based in Bloomington, about its plans.

We’re living in unprecedented times when information changes by the minute. WGLT will continue to be here for you, keeping you up-to-date with the live, local and trusted news you need. Help ensure WGLT can continue with its in-depth and comprehensive COVID-19 coverage as the situation evolves by making a contribution.

Ryan Denham is the digital content director for WGLT.
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