The Impact of Nevada's Class Actions on Auto Insurers: A Double-Edged Sword for Policyholders

The Legal Battle: Class Actions Against Auto Insurers

In Nevada, a series of class action lawsuits were filed last month against ten auto insurers, alleging that the discounts, rebates, and policyholder dividends provided in 2020, amounting to about $14 billion nationally, were not 'meaningful' and that the rates charged violate state law against excessive premiums. This figure does not include the more than $280 million in philanthropic contributions the industry has also made during COVID-19 to support communities.

The Pandemic's Impact on Auto Insurance

The fact is, auto insurance premium rates fell nationally in 2020 for the first time in a decade. Insurers' net income after taxes fell 26.1 percent through the third quarter of 2020, compared with the same quarter the previous year. A major factor was the pandemic-related discounts granted in 2020. 'The rate is lower because people are driving less,' said Triple-I chief actuary James Lynch, noting that during a lockdown period in the spring driving was down as much as 50 percent. Fewer cars on the road should lead to fewer accidents, and this expectation is what led insurers to proactively provide discounts and other policyholder benefits during the pandemic. Many auto insurers have built these discounts into premium rates for 2021, Lynch said.

The Complexity of Auto Insurance Claims

Accidents did decline in 2020; unfortunately, traffic fatalities and claims increased. According to the National Highway Traffic Safety Administration (NHTSA), fatalities rose 4.6 percent in the first nine months of 2020, despite overall vehicle miles traveled having decreased. Fatalities in the third quarter of 2020 were 13 percent higher than in the same period of 2019 – the largest such increase in more than a decade. This suggests that driver behavior deteriorated rapidly and significantly during the pandemic. The 2020 premium reduction would have even been larger, Lynch said, 'if people had slowed down.' Even before COVID-19, auto damage claims were rising faster than general inflation, and auto insurance premium increases trailed inflation. Fatalities had been declining as cars became safer – but safety technology is expensive, making repairs more costly and driving up the size of policyholder claims.

In conclusion, while the class actions in Nevada aim to protect policyholders, they may inadvertently increase costs for insurers, which could lead to higher premiums. Policyholders should stay informed about their insurance policies and consider discussing any concerns with their insurers directly before resorting to legal action.