Insurance companies ordered to give refunds to Californians due to coronavirus

[TexasTowelie]

9. Well yes,

the premium amount for the entire policy term is going to be greater than the refund since only a part of the premium is being refunded for a part of the policy period. So in effect you would be comparing apples to oranges. The insurance department is not requiring the insurance companies to refund the entire policy premium for the entire time the policy is in effect since other factors besides claim losses influence rates. Those other factors include administrative overhead costs, investment income returns which have obviously nosedived with the drop in the stock market, and any special assessments that could be levied by guaranty funds if insurance companies become insolvent.

A more valid comparison is to compare the entire premium for the policy from one year to the next year (or six months if that is the time between the effective and expiration dates of the policies). Of course, the premium for the renewal policy would also need to be adjusted if there is a credit adjustment that is incorporated into the renewal policy premium rather than an actual refund check being issued to the policyholder. Even this comparison from year to year could have some problems though--if the loss experience prior to the pandemic occurring was terrible, then a rate increase would have occurred anyway under the routine rate promulgation.