On April 13, 2020, California Insurance Commissioner Ricardo Lara issued Bulletin 2020-3 requiring California licensed insurers to issue premium refunds to a broad array of policyholders for both personal and commercial lines.
On April 13, 2020, California Insurance Commissioner Ricardo Lara issued Bulletin 2020-3 ("Bulletin") requiring California licensed insurers to issue premium refunds to a broad array of policyholders for both personal and commercial lines. Shelter-in-place orders across California have caused "projected loss exposures of many insurance policies [to] have become overstated or misclassified," according to the Bulletin. "This is especially true for policies where premiums are based partly on measures of risk such as number of miles driven, revenue, and payrolls which have all dropped significantly because of COVID-19," the Bulletin continues.
During recent weeks, insurers across the US have been returning premiums to personal auto customers, and states' insurance commissioners have been quick to accommodate the ability of insurers to issue refunds, which might normally be illegal under states' anti-rebating insurance laws. However, California's Bulletin goes much further.
The Bulletin directs insurers to reduce premiums for several other lines of insurance in addition to the private passenger auto insurance line. Those lines include commercial auto, workers' compensation, commercial multi-peril, commercial liability, medical malpractice, and "any other line of coverage where the measures of risk have become substantially overstated as a result of the pandemic."
While reductions in premiums for these lines are mandated for premiums for the months of March and April, the Bulletin grants insurers reasonable flexibility to determine how best to quickly and fairly accomplish the refund to policyholders. Accordingly, insurers can decide to comply by using a premium credit, reduction, return of premium, or other appropriate adjustment, and may do so without obtaining prior approval by the California Department of Insurance for rates or rules, as long as the insurer does so in a manner consistent with the insurer's rating plan. Such actions can include reclassification of exposures to comport with current exposure or reduction of the exposure base such as miles driven, payroll, or receipts to reflect actual or anticipated exposure.
Insurers are directed to make refunds as soon as possible but by no later than August 2020. And while the directive applies to March and April premiums, the month of May will also be included if shelter-in-place restrictions continue. In addition, insurers of the affected lines have 60 days to file a report with the California Department of Insurance providing monthly and overall totals, such as (among others) number of policyholders receiving a refund, average percentage of refund, and aggregate premium refunded.
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