New data: Auto insurance companies made windfall profits at consumers’ expense during pandemic

Auto insurance companies’ profits soared during the first year of the COVID-19 pandemic, as many Illinoisans were driving less and “sheltering in place.” The risks associated with driving plummeted but insurers did not lower premiums or offer rebates in proportion to the reduction in risk, according to new data released by the Illinois Department of Insurance Thursday. 

According to preliminary analysis, the new data is in line with previous estimates that insurance companies could still owe Illinois car insurance customers $896 million in pandemic relief. For example, the top four auto-insurance companies by Illinois market share – State Farm, Geico, Progressive and Allstate – charged customers $280 million more than needed to maintain their 2019 profitability, even after accounting for the $220 million they refunded customers in 2020.

After overcharging customers, Illinois’ major insurance companies rewarded top executives with generous bonuses.

“Moments of crisis are revealing. Auto insurers took the opportunity provided by the pandemic to charge their customers excessive rates and make windfall profits,” said Abe Scarr, director of Illinois PIRG Education Fund. “The General Assembly should give the Department of Insurance authority to review rate hikes and protect Illinois consumers.”

While auto insurance companies were slow to reduce rates or provide rebates to customers because of the pandemic — and those reductions and rebates proved inadequate — they have been aggressively increasing rates in recent months, claiming that an uptick in crashes and inflationary pressure requires immediate price hikes. State Farm recently raised rates by 3%, only two weeks after a 5% increase. In January, Allstate hiked rates by 12%. 

Illinois regulators have no power to block or modify insurance rate hikes — or to mandate reductions or refunds — as regulators do in other states. California regulators, for example, ordered insurance companies to “close the gap” after initial pandemic rebates fell short. In March 2021, State Farm announced that it was sending its California customers an additional $400 million dollars in pandemic refunds “due to better than anticipated claims results” during the second half of 2020.

Illinois state legislators say insurers need to do better.

“I am appalled that these companies overcharged families sheltering at home and call on the insurers to issue additional refunds promptly,” said Illinois state Sen. Jacqueline Collins. “This is particularly important in Black communities like those I represent, where auto insurers indiscriminately charge higher rates.“

The new data is the result of a March Illinois Department of Insurance call for information documenting insurer profits, losses, and refunds given to consumers between 2019 and 2021. The call for information came in response to a January letter from nine advocacy organizations and 16 state senators asking the Department to take action. In May, the auto insurance industry challenged the Department’s authority to collect and publish such information, but the vast majority of insurers, including all the major ones, complied.

Illinois PIRG Education Fund will perform more detailed analysis of the new data over the summer.