A proposed class action claims GEICO has failed to issue adequate refunds for auto insurance premiums paid during the COVID-19 pandemic despite a “dramatic reduction” in accidents.
According to the 20-page case against GEICO Casualty Company, GEICO Indemnity Company and GEICO General Insurance Company, the insurer has “scored a windfall” while stay-at-home orders have kept drivers largely off the roads. Meanwhile, the suit says, the companies have offered policyholders a mere 15-percent discount on new and renewal auto insurance policies from April to October 2020—a credit the case claims falls well short of what industry experts have estimated to be an adequate refund.
Per the case, GEICO’s so-called “GEICO Giveback” program, which was allegedly advertised falsely to policyholders as GEICO “passing [its COVID-19-related] savings” on to customers, has provided “woefully inadequate” compensation to policyholders while the defendants last year more than doubled their 2019 profits over the same period.
In March 2020, statewide stay-at-home orders issued in response to the pandemic caused the average number of daily miles driven to drop dramatically, which in turn reduced the number of accidents and auto insurance claims, the complaint explains. Because auto insurance rates are intended to cover claims an insurer expects to pay in the future, as determined by historical data, the essential overnight drop in car accidents has led GEICO to “unfairly profit” at the expense of policyholders, the lawsuit alleges.
The case cites the following excerpt from a joint report issued by the Center for Economic Justice and Consumer Federation of America on auto insurance rates amid the pandemic:
“Because of COVID-19 restrictions, the assumptions about future claims underlying insurers’ rates in effect on March 1 became radically incorrect overnight. When roads emptied, the frequency of motor vehicle accidents and insurance claims dropped dramatically and immediately. The assumptions in insurers’ rates covering time-frames from mid-March forward about future frequency of claims became significantly wrong when the roads emptied because of Stay-At-Home orders and business closures starting in mid-March. The then-current rates became excessive not just for new policyholders going forward, but also for existing policyholders whose premium was based on now-overstated expectation about insurance claims.”
The lawsuit argues that while the Center for Economic Justice and Consumer Federation of America report estimated based on “conservative calculations” that policyholders should receive at least a 30-percent refund to correct the “unfair windfall” reaped by auto insurance companies, GEICO answered in Spring 2020 with the rollout of its “GEICO Giveback” program, which was to provide customers with a 15-percent credit on new or renewal policies. The case claims the program, which has now ended, was inadequate in that it did not apply to premiums already paid on previous policies and was “nowhere near” the minimum 30-percent refund benchmark estimated for just the first two months of the pandemic.
According to the suit, GEICO failed to disclose in its advertising that the “GEICO Giveback” program did not, in fact, pass on the company’s savings to customers, and instead allowed the defendants to reap excessive profits during the pandemic. Moreover, customers remained unaware that their premium rates were not based on an accurate assessment of risk, the lawsuit additionally claims.
The case, which echoes a similar lawsuit filed against GEICO in July 2020, looks to represent all California residents who purchased personal auto, motorcycle or RV insurance policies from GEICO covering any portion of time since March 1, 2020.
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