Los Angeles, CA — On Monday California’s insurance commissioner ordered insurance companies to refund premiums for the months of March and April because due to the drastic reduction in risk and driving, due to the Safer at Home order in place.
The order includes “Private passenger automobile insurance, Commercial automobile insurance, Workers’ compensation insurance, Commercial multiple peril insurance, Commercial liability insurance, Medical malpractice insurance, and Any other line of coverage where the measures of risk have become substantially overstated as a result of the pandemic.”
The order from Ricardo Lara is based on a voter-approved law from 1988 that gives the insurance commissioner authority to approve rates before they go into effect. The law also says no rate will “remain in effect” that is excessive, adequate or unfairly discriminatory.
Insurance companies set rates based on the how much risk is involved, using historical data to make those calculations. But since mid-March, most of California’s business sector has come to a halt because of the spread of the coronavirus. Gov. Gavin Newsom, a Democrat, issued a statewide “stay-at-home” order on March 19 that closed schools and non-essential businesses.
The order gives insurance companies some leeway stating, ” Commissioner Lara grants each insurer reasonable flexibility in determining how best to quickly and fairly accomplish the refund of premium to policyholders. Insurers may comply with the premium refund order by providing a premium credit, reduction, return of premium, or other appropriate premium adjustment. ”
Based on our interpretation, this would mean insurance companies would be required to issue a credit or adjustment, that would equate to the same amount, if they had refunded the months of March and April.