Legislature(1993 - 1994)
03/08/1994 08:00 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 REPRESENTATIVE BILL HUDSON, CHAIRMAN HOUSE LABOR & COMMERCE, 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 DENNIS BROWN, ALASKA INDEPENDENT INSURANCE AGENTS & BROKERS, 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 bad. 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 liabilities. CHAIRMAN VEZEY asked HOWARD JAEGER if he would join the table to testify on HB 403. Number 190 HOWARD JAEGER, SHATTUCK AND GRUMMETT INSURANCE, testified in 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 it. 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 28.20.440." 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 JOHN GEORGE, NATIONAL ASSOCIATION OF INDEPENDENT INSURERS, 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 note. 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 recommendations. 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.