May 20, 2020

COVID-19 Insurance: New Jersey Issues Premium Refund Mandate

On May 12, 2020, the New Jersey Department of Banking and Insurance ("Department") issued Bulletin 20-22 ("Bulletin") ordering insurance companies to issue partial premium refunds for specified personal and commercial lines of business because of decreased policyholder activity due to the COVID-19 pandemic, together with Order A20-03 requiring certain insurers to provide claim and premium activity reports related to the Bulletin to the Department on a monthly basis beginning in June 2020.

On May 12, 2020, New Jersey Insurance Commissioner Marlene Caride issued Bulletin No. 20-22 (“Bulletin”) requiring New Jersey licensed, admitted and surplus lines insurers transacting property and casualty insurance in New Jersey (“Insurers”) to reduce premiums for private passenger automobile insurance as well as for several commercial lines of insurance.

As the pandemic has reduced driving (leading to fewer accidents, injuries and fatalities on highways and roads) and curtailed activities of policyholders in both personal and commercial lines of insurance, the Bulletin states that “the projected loss exposures of many policies [have] become overstated or misclassified,” particularly where premiums are based on measures of risk such as “number of miles driven, revenue, and payrolls.” Based on the foregoing and New Jersey insurance law’s requirement that insurance rates not be excessive, inadequate, or unfairly discriminatory,  the Bulletin orders Insurers to “make an initial premium refund or other adjustment to all adversely-impacted New Jersey policyholders.”

The mandate in the Bulletin applies for each month the public health emergency in New Jersey is in effect, and is required to be applied as quickly as possible but by no later than June 15th. The affected lines of insurance include:

  • private passenger automobile
  • commercial automobile
  • workers’ compensation
  • commercial multi-peril
  • commercial liability
  • medical malpractice
  • any other line of coverage where the measures of risk have become substantially overstated as a result of the pandemic

Insurers may comply with the mandate by a direct refund to policyholders, a premium credit, reduction, dividend or other appropriate premium adjustment. Premium refunds do not require prior approval by the New Jersey Department of Banking and Insurance as long as Insurers apply a uniform premium reduction for all policyholders in a particular line of business. Licensed and admitted Insurers must submit all components of their refund program (i.e., rate, rule, and/or form filing) not more than 15 days after implementing the refund program, which will be subsequently reviewed by the Department for compliance with the New Jersey insurance laws. An Insurer that believes it can demonstrate that its rates are not excessive, inadequate, or unfairly discriminatory or that it should not otherwise be subject to the mandate of the Bulletin has until June 1st to submit its basis and documentation to the Department.

Affected policyholders must be notified by June 15th of the amount of refund or adjustment, which is required to include an explanation of the basis for the adjustment, the policy period to which the adjustment applies, and any changes to the classification or exposure basis. And each policyholder must be offered the opportunity to provide their individual actual or estimated experience to the Insurer.

The Bulletin is accompanied by a data call (Order No. A20-03) for certain insurer groups with more than $20M in written premiums in 2019 for all property and casualty lines combined, as well as for insurer groups participating in the New Jersey Personal Automobile Insurance Plan (PAIP) and Commercial Auto Insurance Plan (CAIP). Such data is due monthly starting in June 2020 and running through at least September 2020.

With the issuance of its premium reduction mandate, New Jersey joins California in requiring premium reductions or refunds for any lines of insurance. California issued a nearly identical mandate and data call on April 13, 2020 in the California Insurance Department Bulletin 2020-3.  Other states have issued bulletins encouraging instead of mandating insurers in their states to consider premium reductions, most often for personal automobile insurance but also for certain commercial lines such as workers compensation and commercial automobile coverages.