Drivers in Massachusetts overpaid for auto insurance last year by more than $632 million due to the pandemic, when drivers cut way back on driving and filed far fewer claims, a new report by two national consumer advocacy groups says.
The report comes five months after a similar conclusion was reached by the office of Attorney General Maura Healey, which pegged the amount that drivers overpaid for insurance at about $700 million.
Both the attorney general’s office and the consumer advocacy groups are calling for substantial refunds or reductions in premiums to drivers.
The latest report was released Aug. 11 by the Consumer Federation of America and the Center for Economic Justice, which studied insurance industry data from all 50 states and provided state-by-state breakdowns.
Nationwide, consumers got short-changed by the insurance industry by nearly $30 billion in 2020, the CFA/CEJ report says. Although insurers did provide some premium relief to policyholders last year, it was less than one-third what consumers should have gotten, the report says.
Healey reacted to the new report by releasing a statement Thursday saying her office was “troubled by the industry’s windfall profits at a time when so many families are still struggling financially.”
Healey said the CFA/CEJ report “supports our assertion, which we have made numerous times over the past year and a half, that Massachusetts drivers are owed hundreds of millions of dollars by the insurance industry, which reaped excessive profits when claims plummeted due to the pandemic.”
Healey said her office, which has no control over the state Division of Insurance, would continue to “advocate for fair insurance rates in Massachusetts.”
Since the pandemic began, the attorney general’s office has fired off a half-dozen letters to the state DOI, which reviews rates charged by insurers.
The DOI, in a statement released Thursday, said it is requiring insurers to submit filings that are more detailed than those reviewed by the attorney general’s office or CFA/CEJ.
In those filings, insurers must show how their financial experience in 2020 affects the rates they now intend to charge, giving the DOI an opportunity to judge whether their proposed rates are “fair and not excessive,” the agency said.
The DOI is also requiring that insurers provide details about whatever premium relief they have already offered, the DOI said.
Last year, almost all insurers of private passenger vehicles voluntarily provided refunds to drivers, at the urging of the DOI. On a per policy basis, those refunds ranged from $30 to $90, a less than 10 percent reduction in premiums for even the most generous.
A refund of $700 million, as the attorney general’s office is calling for, would mean a refund or reduction in premiums of about $150 per policyholder.
The analyses by CFA/CEJ and the attorney general’s office, conducted independently, are premised on filings by the industry that show it paid out hundreds of million of dollars less in claims in 2020, compared to previous years.
The analyses focused on what is known in the industry as the loss ratio: the amount insurers pay in claims (losses) compared to the amount they receive in premiums.
The loss ratio prior to the pandemic was about 62, the attorney general’s office said in a March 31 letter to the DOI. That meant 38 cents of every dollar went to expenses and profit. But last year the loss ratio dropped to 49, giving insurers 51 cents of every dollar they received, a gain of 13 cents on every dollar in premiums for insurers compared to previous years.
“This drop in loss ratio resulted in additional profits for insurance companies of about $700 million,” Glenn Kaplan, chief of the unit in the attorney general’s office that deals with insurance matters, wrote in the March 31 letter to the DOI.
In its report, the CFA/CEJ called on state insurance regulators nationwide to do more on behalf of consumers, noting that almost every state, including Massachusetts, prohibits insurers from charging “excessive” rates.
“It was crystal clear that insurer premium relief was woefully inadequate,” said J. Robert Hunter, CFA director of insurance.
Companies that sell auto insurance in Massachusetts are free to set their own rates, but the insurance commissioner has the authority to review them to make sure they aren’t excessive, in which case approval can be withheld.
In March, the DOI notified insurers that it expected them to file “2020 claims experience and expenses” by June 30 as part of the rate-setting process.
The DOI later extended that deadline to Sept. 30 to allow the agency time to refine what it was asking insurers to file. Last month, the DOI informed insurers that their filings must include extensive data and analysis of the impact the pandemic has had on driving habits, the number and severity of accidents, and claims.
MAPFRE, the dominant auto insurer in the state, said in a statement in reaction to the CFA/CEJ report that $30 million in premium relief went to its customers last year, and that more steps may be taken.
“The unique effect of the pandemic on driving, including the reduction in miles driven and the number of accidents in 2020, as well as current trends, will be reflected in MAPFRE’s rates and premiums being charged to our customers,” it said.