The state insurance commissioner has ordered insurers to refund a portion of premiums to policyholders, due to the reduced risk of claims in light of the COVID-19 outbreak and shelter-at-home orders.

Commissioner Ricardo Lara’s notice covers premiums paid for at least the months of March and April – including the month of May if “shelter-in-place” restrictions continue – in the following lines of insurance:
 

  • Commercial automobile,
  • Workers’ compensation,
  • Commercial multi-peril,
  • Commercial liability,
  • Medical malpractice,
  • Private passenger automobile, and
  • Any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic.

The order was made to reflect the reduced risks across the board. For example, with fewer people driving, the risk of accidents has fallen dramatically and, with fewer people working, the risk of workplace injuries has also plummeted.

The order gives insurance carriers flexibility in how to handle the refunds, including providing a premium credit, reduction, return of premium or other appropriate premium adjustment within 60 days of the notice, which was issued April 13.

In his announcement, the insurance commissioner cited a study by UC Davis which found that reduced driving has resulted in fewer accidents, injuries and fatalities on the roads.

Declining payroll and receipts due to closure orders have also dramatically reduced risk of a liability loss for businesses.

The order comes on the heels of a handful of insurance companies that have voluntarily offered premium refunds or discounts to policyholders because the risk of claims has fallen due to the pandemic and shelter-at-home orders.

For example, Chubb Insurance announced that small policyholders whose policies will renew between April 1 and Aug. 1, will see a 25% reduction in the sales and payroll exposures used to calculate their premium, as well as a 15% reduction in premiums for commercial auto policies.

Additionally, several auto insurance companies have recently announced voluntary premium refunds to drivers.

Meanwhile, State Compensation Insurance Fund announced in late March that it had placed a moratorium on policy cancellations and late payment penalties.

It will also extend credit to any business negatively impacted by COVID-19 events and offer businesses the ability to adjust their payroll reporting.

The takeaway

Lara said this was just the first announcement on the issue. The Department of Insurance could issue further notices if the stay-at-home order continues beyond May.

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