Attorney General Maura Healey says auto insurers reaped hundreds of millions of dollars in extra profits during the pandemic and that most of that money should now be returned to drivers in the form of refunds and lower premiums.
In the latest of a half-dozen letters she has sent to the state Division of Insurance, Healey on March 31 urged it to “stop” insurers from “continuing” to “overcharge” consumers.
The Division of Insurance did not respond directly to Healey, but told a Globe reporter that it has informed auto insurers it expects them to soon file with the agency detailed data on their claims and expenses during the pandemic.
The agency is committed to “fair and actuarially appropriate” rates, it said, including consideration of “changes in consumer driving behavior.”
There is ample evidence that the crisis triggered by the coronavirus prompted consumers to drive far fewer miles than prior to the pandemic.
Healey’s office contends data show a reduction in driving in 2020 of about 50 percent, and that as a result there were fewer crashes, fewer claims, and fewer payouts by insurers.
One key economic indicator in the insurance industry is what’s called the loss ratio — the amount an insurer pays in claims (losses) compared to the amount it receives in premiums.
The overall loss ratio prior to the pandemic was about 62, the attorney general’s office said. That meant insurers kept as profit 38 cents of every dollar they received, not counting administrative and other costs. But last year the loss ratio dropped to 49, giving insurers 51 cents of every dollar they received — a 34.2 percent increase.
“This drop in loss ratio resulted in additional profits for insurance companies of about $700 million,” according to the letter, signed by Glenn Kaplan, chief of the unit in the attorney general’s office that deals with insurance matters.
The auto insurance industry in Massachusetts was deregulated in 2008. Prior to that, the insurance commissioner controlled how much insurers could increase their premiums.
Now, insurers are free to set their own rates, but the commissioner has authority to review them to make sure they aren’t excessive, in which case approval can be withheld.
During the pandemic, the Division of Insurance has touted its role in encouraging insurers to voluntarily provide refunds. It also encouraged insurers to defer premiums when drivers faced economic distress due to the pandemic.
Last year’s discounts ranged from 15 percent for two months to 15 percent for six months, according to a recent report from the Massachusetts Public Interest Research Group, or MassPIRG.
The average annual premium in Massachusetts is about $1,200; thus the average discounts ranged from about $30 to $90, far less than 10 percent for even the most generous refund. (MAPFRE, the dominant insurer in Massachusetts, with about one-quarter of all policies in the state, returned about $30 million to customers in a premium giveback last year, it says.)
In its letter, the attorney general’s office cautioned against insurers setting high premiums going forward.
“We believe you [insurance commissioner] need to act to prevent insurers from attempting to raise rates even further,” based on an assumption that “things will be back to ‘business as usual,’ ” the letter says.
Healey’s position is supported by a dozen legislators, led by Senator Barry Finegold, who wrote to the commission in December that high premiums in the face of reduced driving “disproportionally hurts communities that have been hardest hit by COVID-19,” such as “low-income urban communities and communities of color.”
Finegold’s district includes Lawrence, one of the communities hardest hit by the pandemic.
“The numbers speak for themselves,” Finegold said in an interview. “It’s only fair to give a rebate.”
MassPIRG also called for a consumer relief in a letter to the insurance commissioner.
“People are driving less, so their costs should be significantly lower,” Deirdre Cummings, MassPIRG legislative director, said in an interview. “That’s common sense.”
Some advocates for refunds pointed to California, where the insurance commission has concluded auto insurers overcharged drivers and ordered them to report to it by April 30 on “how they will return additional premiums back” to drivers, according to a recent news release from that agency.
Christopher Stark, executive director of the Massachusetts Insurance Federation, a lobbying group, said auto insurers have done their part by providing refunds, by suspending policy cancellations, and by offering payment plans for policyholders unable to immediately pay premiums.
He cast doubt on the attorney general’s calculations, saying insurance industry losses for 2020 are still being processed and may be higher than the figures cited by others.
Stark also pointed out that insurers don’t ask for increases in premiums retroactively after losses exceed what they expected.