Legislature(1993 - 1994)

03/08/1994 08:00 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HB 403 - AUTOMOTIVE LIABILITY INSURANCE COVERAGE                             
  CHAIRMAN VEZEY opened HB 403 for discussion.  The House                      
  Labor & Commerce Committee sponsored HB 403.                                 
  Number 677                                                                   
  addressed HB 403.  Legislation passed in 1992 requires                       
  insurance companies to offer uninsured and underinsured                      
  motorist coverage in excess of voluntarily purchased                         
  coverage by the insurer.  He explained on current insurance                  
  forms there is a signed statement on the back which states                   
  one has turned down the higher limits required by law to be                  
  offered to you.  He stated HB 403 was introduced to remove                   
  the mandatory offer of higher insurance limits.  Alaska is                   
  the only state in the Nation which requires uninsured and                    
  underinsured motorist coverage of up to $2 million.  AS                      
  21.89.020 would be amended to require coverage that includes                 
  policy limits equal to the limit voluntarily purchased.  He                  
  felt, with the passage of HB 403, there would be greater                     
  competition because companies which could not offer those                    
  higher limits would be enticed to join the market.                           
  TAPE 94-24, SIDE B                                                           
  Number 000                                                                   
  CHAIRMAN VEZEY asked any future witness to answer if there                   
  was any advantage to an individual purchasing insurance                      
  limits that exceed their net assets.                                         
  CHAIRMAN VEZEY asked DENNIS BROWN if he would again like to                  
  testify on HB 403.                                                           
  Number 042                                                                   
  testified in favor of HB 403.  They would like a healthy                     
  competitive insurance market in the state to provide better                  
  prices and coverage for the consumers.  HB 403 would make                    
  only minimum requirements, and the actually extension of                     
  coverage is a decision made by purchaser of insurance.  He                   
  stated HB 403 would not remove the provisions for uninsured                  
  and underinsured motorists, but rather change the limits of                  
  coverage.  If a purchaser decides to purchase $500,000 of                    
  insurance for third party liability, injuries or damages to                  
  others, the same limits should be available as under the                     
  underinsured and uninsured motorists.  He felt the coverage                  
  should not be in excess of what the purchaser bought for                     
  liability.  MR. BROWN emphasized automotive liability                        
  coverage is mandated in the state of Alaska, and as such it                  
  should be affordable and attainable.  He pointed out the low                 
  population and high cost of doing business in Alaska creates                 
  a limited and secluded market for those in insurance.                        
  Alaska does not develop the large premium dollars to attract                 
  underwriters.  He said Alaska is usually the last state a                    
  company enters and the first state to leave if things get                    
  Number 123                                                                   
  REPRESENTATIVE KOTT asked if MR. BROWN could confirm that                    
  Alaska is the only state requiring coverage up to the $2                     
  million limit.                                                               
  MR. BROWN replied, to the best of his knowledge, Alaska is                   
  the only state.                                                              
  CHAIRMAN VEZEY inquired if there was any valid reason a                      
  person would carry liability insurance that exceeds their                    
  net personal worth.                                                          
  Number 137                                                                   
  MR. BROWN responded net worth is probably the best                           
  "barometer" to use when purchasing liability insurance.  He                  
  noted what is affordable to buy in the market place also                     
  weighs heavily in the decision making process.                               
  Number 157                                                                   
  CHAIRMAN VEZEY said, for example, his net worth was                          
  $250,000.  He asked the minimum policy rate.                                 
  MR. BROWN answered minimum policies are $1,500, $2,500, or                   
  $125,000 single limit as the state requires.                                 
  Number 167                                                                   
  CHAIRMAN VEZEY questioned if there would be a valid reason                   
  for carrying liability insurance which exceed a person's net                 
  personal worth.                                                              
  Number 169                                                                   
  MR. BROWN said yes, it is what an individual may feel they                   
  would be accountable to others in the operation of that                      
  vehicle.  Even if a limit exists, and the accident exceeds                   
  the limit, one would still have the potentiality of personal                 
  CHAIRMAN VEZEY asked HOWARD JAEGER if he would join the                      
  table to testify on HB 403.                                                  
  Number 190                                                                   
  favor of HB 403.  He emphasized HB 403 would not preclude                    
  those drivers that want to buy higher uninsured limits from                  
  buying them.  Companies who offer an individual $500,000                     
  worth of liability insurance to purchase would have to                       
  provide that amount.  HB 403 would provide; however, those                   
  companies which can only offer $50,000 and $100,000 bodily                   
  injury limits to only have to offer $50,000 and $100,000                     
  uninsured motorist limits.  Insurance companies can already                  
  offer high liability limits far in excess of state                           
  requirements. Therefore, HB 403 would not limit an                           
  individual's ability to still buy the higher limits after                    
  they are no longer law.  MR. JAEGER explained higher limits                  
  of uninsured motorists have generally not been purchased by                  
  the consumer.  Many people are buying insurance at their                     
  current liability limits, or even lower.  Alaska's mandatory                 
  insurance limits currently are higher than any of the other                  
  49 states in the Nation.  Regarding young drivers, because                   
  their costs have increased and the way the law is written,                   
  they can reject uninsured motorist insurance totally.  He                    
  believed the Division of Insurance had submitted information                 
  to the committee in support of HB 403.                                       
  Number 243                                                                   
  REPRESENTATIVE HUDSON asked if Alaska was the only state                     
  with arbitrarily established top limits on insurance, and                    
  how does Alaska compare on the bottom limits.                                
  Number 249                                                                   
  MR. JAEGER answered Alaska's liability minimums are almost                   
  double the limits in any other state, even triple over some                  
  states.  Uninsured motorist insurance, he recollected, is a                  
  mandatory offering by about half of the other states, but                    
  none of them meet the 1-2 million limits in Alaska.                          
  Number 257                                                                   
  REPRESENTATIVE HUDSON pointed out those who have preceded                    
  [us] have some how determined that Alaska's bottom limits                    
  should be twice as high as the next highest in the Nation.                   
  The state also determines arbitrarily that any company                       
  operating in Alaska has to offer 1-2 million limits even                     
  though other states do not.  He felt HB 403 would put                        
  insurance limits back down into normal ranges.  He                           
  emphasized the bottom limits would be worked on next,                        
  because young individuals are going uninsured due to                         
  Alaska's bottom limits being so high that they cannot afford                 
  Number 281                                                                   
  REPRESENTATIVE G. DAVIS asked if page 1, line 14, referred                   
  to the $125,000 bottom limit when it states,"the policy                      
  limit written may not be less than the policy limit in AS                    
  Number 289                                                                   
  MR. JAEGER affirmed REPRESENTATIVE G. DAVIS.  Liability                      
  insurance is written with "split limits," whereby each                       
  person has $50,000 maximum, $100,000 for each accident, and                  
  $25,000 property damage liability.  Liability insurance can                  
  also be written with $125,000 total which includes bodily                    
  injury and property damage.                                                  
  MR. JAEGER addressed CHAIRMAN VEZEY's question as to why a                   
  person may want to buy higher liability limits.  He felt an                  
  individual cannot judge the worth of someone they may                        
  involve in a major accident.  Therefore, a judgment could                    
  come against that individual which could far exceed his/her                  
  stated liability limit.  The judgment against them would be                  
  precluded by the amount of liability they have and also by                   
  the amount of assets they have.                                              
  Number 316                                                                   
  CHAIRMAN VEZEY commented the judgment is against the person                  
  and not the insurance company.                                               
  Number 317                                                                   
  MR. JAEGER affirmed CHAIRMAN VEZEY.                                          
  Number 318                                                                   
  CHAIRMAN VEZEY continued a person buys insurance to protect                  
  their assets.   However, in Alaska insurance is bought                       
  because it is required by law.  He asked if a person could                   
  receive a judgment which not only takes their assets, but                    
  also their insurance policy.                                                 
  Number 328                                                                   
  MR. JAEGER responded if the judgment was for $150,000, and                   
  the liability insurance policy only covered $100,000, the                    
  insurance company would pay the $100,000 and leave the other                 
  $50,000 for the policyholder to come up with.                                
  Number 338                                                                   
  REPRESENTATIVE OLBERG explained he carries a $1 million                      
  liability on his homeowner insurance because he wants a                      
  "willing and enthusiastic partner when [he] gets in                          
  trouble."  He said it only costs him $20-25 more than the                    
  minimum every month to have this type of coverage.  He said                  
  he understood that if an individual is worth a $100,000 and                  
  gets a judgment against him/her for $500,000, then that                      
  individual will have to spend the rest of his/her life                       
  paying off the debt.                                                         
  CHAIRMAN VEZEY believed at that point the bankruptcy laws                    
  would take effect.                                                           
  REPRESENTATIVE OLBERG did not believe declaring bankruptcy                   
  would be the solution.                                                       
  Number 350                                                                   
  CHAIRMAN VEZEY asked JOHN GEORGE to testify next.                            
  Number 356                                                                   
  testified in favor of HB 403.  He stated he used to be the                   
  Director of Insurance for the State of Alaska, and while in                  
  that position, the law presently being challenged by HB 403                  
  was adopted.  He pointed out the passage of that bill did                    
  lead to the loss of several insurance carriers.  The reason                  
  insurance carriers cannot offer the $2 million limit is                      
  because of their reinsurance.  Insurance companies lay off                   
  part of the risk to other insurers, and their contracts with                 
  these other insurers contemplates the type of business that                  
  they write.  If companies write up to $500,000 worth of                      
  liability, they buy reinsurance that covers them for                         
  $400,000, in excess of the $100,000 they want to retain.                     
  With the $2 million limit, the company would have to buy                     
  $1.9 million in reinsurance to cover themselves, in excess                   
  of the $100,000 they would want to retain on account.  He                    
  emphasized the $2 million limit is not economical for Alaska                 
  when there are multiple states writing policies.  Reinsurers                 
  even look at Alaska's requirement and question whether or                    
  not they should even reinsure the companies because of the                   
  unusually high amount.                                                       
  MR. GEORGE addressed REPRESENTATIVE HUDSON'S statement about                 
  reducing the minimum requirements.  He felt reducing them                    
  would be attractive, realizing there would always be the                     
  chance of getting into a major accident, the vast majority                   
  of accidents involve only $2,000-$5,000 worth of damages and                 
  some medical bills.  These types of accidents could be                       
  covered by fairly minimal insurance limits.  He noted if an                  
  accident is the fault of a person with low liability                         
  insurance, and the other party has a higher limit, the lower                 
  limit would cover what it could and the higher insurance of                  
  the other party would cover the difference.  He emphasized                   
  people would not be disadvantaged by not being able to                       
  collect, and he agreed lowering the bottom limits would                      
  cover individuals for 99 percent of the accidents they would                 
  be in.                                                                       
  Number 416                                                                   
  REPRESENTATIVE G. DAVIS moved to pass HB 403 from committee                  
  with individual recommendations, and accompanying fiscal                     
  Number 419                                                                   
  CHAIRMAN VEZEY noted the fiscal note for HB 403 was on page                  
  3, and asked the committee secretary to call the roll.                       
  CHAIRMAN VEZEY announced HB 403 passed unanimously from the                  
  House State Affairs committee with individual                                
  CHAIRMAN VEZEY called for a recess at 9:12 a.m.  The meeting                 
  reconvened at 9:26 a.m. with REPRESENTATIVES B. DAVIS and                    
  OLBERG present.                                                              

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