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Law360 (May 13, 2020, 4:00 PM EDT) -- Insurers must provide premium refunds, credits and reductions to New Jersey policyholders in light of how the COVID-19 pandemic has lowered the companies' risk exposures by forcing motorists to drive fewer miles and employers to slash their payrolls, state regulators said.
The state's Department of Banking and Insurance on Tuesday directed insurers to provide such relief to individuals and businesses with various types of policies, such as automobile, workers' compensation, commercial liability and medical malpractice insurance.
The directive applies to "any other line of coverage where the measures of risk have become substantially overstated as a result of the COVID-19 pandemic," according to a bulletin issued by the department.
"The reality is that we have seen a dramatic reduction in driving and other activities as a result of the pandemic, which has a direct impact on the risk associated with specific lines of insurance," DOBI Commissioner Marlene Caride said in a statement. "It is only fair and appropriate given the circumstances to provide consumers with premium relief during this time period."
According to the bulletin, insurance companies must initially provide a premium credit, reduction, return of premium, dividend or other appropriate premium adjustment to "all adversely-impacted New Jersey policyholders" and for each month that the state's virus-related public health emergency remains in effect.
Insurers have to provide that relief "as quickly as practicable" but no later than June 15, the bulletin said. The premium refunds or other adjustments may be based on reclassifying exposures or reducing the "exposure base," such as miles driven or payroll amounts, according to the bulletin.
Without prior department approval, insurers may begin reducing premiums on a uniform basis for all policyholders in a given line of insurance, the bulletin said.
The agency might require changes to such a premium refund program for various reasons, such as if it "inappropriately benefits the insurer over the policyholder" or "if the insurance rates are excessive, inadequate, or unfairly discriminatory," the bulletin said.
Insurers also may provide premium relief to individual policyholders on a case-by-case basis with prior agency approval, according to the bulletin.
"Where there are risk misclassifications resulting in premium overcharges, insurers should immediately reclassify risks and adjust premium," such as "reclassifying a physician practice to part-time status" and "excluding payroll for employees who are being paid, but not actively working," the bulletin said.
If any insurer can show "its rates are not excessive, inadequate, or unfairly discriminatory" or otherwise asserts it should not have to follow the bulletin, the company must submit the basis for that contention and supporting documents by June 1, the bulletin said.
Caride added in Tuesday's statement, "While various insurers have provided premium reductions to their policyholders, this action provides consistent direction to the insurance industry for the period the public health emergency is in effect."
"I appreciate the industry adhering to the directives issued by the department to assist residents and businesses during this extraordinary time," she said.
The latest directive follows a series of measures taken by the department in response to the pandemic, including requiring insurers doing business in the Garden State to grant extensions for premium payments owed by businesses and individuals enduring financial hardships due to the crisis.
That directive, issued April 10, followed an executive order Gov. Phil Murphy issued to extend grace periods for health, life, property and casualty insurance policies.
The required extensions include a minimum 60-day grace period for health and dental insurance policies and a minimum 90-day grace period for life, auto, homeowners and renters insurance. Under the order, insurers are barred from canceling policies for nonpayment of premiums. The directive also applies to carriers issuing Medicare Supplement Insurance plans and insurance premium finance companies.
--Additional reporting by Jeannie O'Sullivan. Editing by Abbie Sarfo.
For a reprint of this article, please contact reprints@law360.com.
