Insurance companies set their premium rates according to the risk that a claim will result. That’s why premiums for teenage drivers are more expensive than those for 50-year olds (kids have more accidents); and it’s why you’ll pay less if you drive 1,000 miles per year instead of 10,000.
That simple equation (the higher the risk, the bigger the premium) wasn’t lost on California’s Insurance Commissioner, who issued a bulletin on April 13, 2020, directing companies doing business in California to lower premiums and issue refunds across a wide range of consumer and business insurance lines:
• private passenger automobile
• commercial automobile
• workers’ compensation
• commercial multi-peril
• commercial liability
• medical malpractice, and
• any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic.
Commissioner Lara explained his decision simply: “With Californians driving fewer miles and many businesses closed due to the COVID-19 emergency, consumers need relief from premiums that no longer reflect their present-day risk of accident or loss…today’s mandatory action will put money back in people’s pockets when they need it most.”
Insurers can comply with the directive by providing a premium credit, reduction, or return; or any other appropriate adjustment. To calculate the adjustment, companies may apply a uniform reduction for all policyholders in a particular insurance line; or they can reassess the risk and exposure that each individual insured now presents, and lower the premium accordingly.
Whatever adjustment method they choose, insurance companies must notify affected policyholders with an explanation and a check or adjusted premium no later than August 11, 2020.