San Antonio insurer USAA reaped ‘unfair windfall’ from ‘extreme premiums’ throughout pandemic

A USAA member in California has accused the San Antonio insurer of “unfairly profiting” from “excessive premiums” during the pandemic when auto accident claims fell.

A proposed class-action lawsuit filed by Philip Johnson of Bonita, Calif., last week in a Southern California federal court seeks more than $5 million in damages from USAA.

Johnson’s suit says stay-at-home orders during the pandemic led to a “dramatic reduction in driving, and an attendant reduction in driving-related accidents.”

“This decrease in driving and accidents has significantly reduced the number of claims that auto insurers like USAA have paid, resulting in a drastic and unfair increase in USAA’s profits at the expense of its customers,” Johnson’s complaint alleges.

Johnson wants USAA to turn over “ill-gotten gains” and pay unspecified punitive damages.

“USAA is confident that our auto policy dividends and premium credits, along with a range of other financial relief efforts to help members, were appropriate,” the company said in an emailed statement. “We remain committed, as we have been for nearly 100 years, to providing highly competitive products and exceptional service to military members and their families.”

In the early months of the pandemic in 2020, USAA announced two rounds of refunds for members. The 20 percent credits covered three months of premiums and represented $800 million in refunds for its members, the company disclosed at the time.

USAA announced a third dividend in August 2020, amounting to 10 percent of premiums for up to two months.

The $270 million dividend brought the total breaks USAA extended to its customers to almost $1.1 billion.

USAA offered additional dividends and smaller premium credits ranging from 3 percent to 5 percent for California members in 2020 and 2021, the suit says. But Johnson alleges the combined amounts were “inadequate to compensate for its customers for the unfair windfall that the company has obtained as a result of COVID-19.”

Johnson cites motor vehicle accident data analyzed by Center for Economic Justice and the Consumer Federation of America, which calculated that consumers should have received at least a 30 percent minimum average premium refund from mid-March through April 2020.

The groups determined in August that insurers should have returned $42 billion of premium overcharges to consumers, but actually refunded $13 billion. Consumers were “shortchanged” by more than $125 per vehicle, the groups said.

The vast majority of state insurance regulators took no action to compel insurers to return “illegal profits,” the groups added.

Four USAA companies that provide automobile insurance had a combined loss ratio of about 57 percent in 2020, down significantly from almost 76 percent in 2019, figures reported by the company show. The loss ratio tracks losses incurred to premiums earned. The lower the percentage, the better.

“There may have been slight differences in defense costs… (and) some other differences in expenses over the course of the year, but nothing that will in any way undo the fact that during the pandemic, insurance companies pulled in a windfall profit because people weren’t driving,” the CFA’s Douglas Heller said.

The Federal Highway Administration estimated American drove about 430 billion fewer miles in 2020 than in 2019, a 13 percent drop.

While miles driven declined and accident frequency initially dropped at the start of the pandemic, accident frequency and severity quickly started increasing again, said Michael Barry, a spokesperson for the Insurance Information Institute, an industry association.

“In fact, miles driven dropped 11 percent nationwide in 2020 yet traffic crash fatalities reached in 2020 their highest level since 2007Barry said. “Moreover, while insurers’ personal auto loss ratios fell briefly and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels.”

Early in the pandemic, the Center for Economic Justice and the Consumer Federation of America applauded USAA for its industry leadership in providing premium relief.

USAA should have continued to give back more of its anticipated excess as the pandemic dragged on, Heller said.

Johnson has sued USAA for breach of contract, unjust enrichment and violations of California’s unfair competition law.

“California has a longstanding public policy limiting an insurer’s ability to impose rates in excess of a fair rate of return on the insured risk,” the suit says. “USAA has engaged in immoral, unethical, oppressive, and unscrupulous activities that are substantially injurious to consumers.”

pdanner@express-news.net

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