As the COVID-19 crisis has reduced the activities of many businesses, the projected exposures to losses made prior to the crisis may now be overstated. Yesterday, Insurance Commissioner Ricardo Lara responded to this new reality. Commissioner Lara ordered insurers to make an initial premium refund for the months of March and April to all adversely impacted California policyholders in certain lines of insurance. If refunds are issued, they are due from the insurance industry within 120 days of April 13, 2020 or approximately early to late August. RPNA wanted to alert its friends and clients that premium reductions may be available for the following lines of coverage:
1.) Workers’ compensation insurance
2.) Commercial automobile insurance
3.) Commercial liability insurance
4.) Commercial multiple peril insurance
5.) Medical malpractice insurance
6.) Private passenger automobile insurance
7.) Any other line of coverage where the measures of risk
have become substantially overstated as a result of the
pandemic.
The order allows each insurer reasonable flexibility in determining how best to accomplish the refund of premium to policyholders. There are also options for the refund itself. It may be in the form of a premium credit, premium reduction, return of premium, or other premium adjustment. As long as it is consistent with the carrier’s existing rating plan, the refund may be calculated by reclassifying exposures to match current exposure, or reducing the previously estimated exposure base (such as payroll, miles driven, or receipts) to reflect the current actual or anticipated exposure.
The reduction in exposure and need for less premium is especially true for workers’ compensation policies, where current premium payments may be based on estimated payroll made at the beginning of the policy prior to the COVID-19 pandemic.
The insurer is to provide each affected policyholder with notice of the refund amount, and a check, premium credit, reduction, return of premium, or other appropriate premium adjustment. The insurer must also provide an explanation of the basis for the adjustment, the policy period to which it applies, and any changes to the classification or exposure basis of the affected policyholder. Each insured must also be provided the opportunity to submit their individual actual or estimated experience. Insurers are also to report to the Insurance Commissioner the actions they take and expect to take in response to the Order.
Prior to the COVID-19 crisis, employers provided payroll and other work-related estimates with the assumption that business would continue as normal. Premium payments were then based on those estimates, and mid-year adjustments may have been difficult or cumbersome. Commissioner Lara’s order is intended to make this process easier. However, like all changes made in response to the pandemic, things may not go as smoothly as planned. While it is now incumbent on insurers to evaluate their insureds’ policies to determine the applicability of refunds, there may be insureds who should be receiving refunds, but do not receive them. Or there may be unnecessary delay in receiving them.
RPNA continues to vigilantly work with our family of clients to seek relief from premium overcharges wherever possible. If you believe you may be owed a premium refund based on adjustments due to COVID-19, feel free to contact us to discuss how we may be able to assist you or ask your Broker.
Please contact Nicholas Roxborough at (818) 992-9999, ext. 222, or David Ginsburg, at ext. 228.
In the meantime, we hope you are healthy and staying safe.
Here is the link to the CDOI Bulletin.
