Legislature(2001 - 2002)
04/18/2002 02:22 PM Senate TRA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION COMMITTEE
April 18, 2002
2:22 p.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Jerry Ward, Vice Chair
Senator Gary Wilken
Senator Kim Elton
MEMBERS ABSENT
Senator Robin Taylor
COMMITTEE CALENDAR
SENATE BILL NO. 327
"An Act relating to motor vehicle insurance; and providing for an
effective date."
MOVED CSSB 327(TRA) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
SB 327 - No previous action to consider.
WITNESS REGISTER
Senator Dave Donley
Alaska State Capitol
Juneau AK 99801-1182
POSITION STATEMENT: Sponsor of SB 327.
Ms. Sarah McNair-Grove
Property Actuary
Division of Insurance
Department of Community and Economic Development
PO Box 110805
Juneau AK 99811
POSITION STATEMENT: Commented on SB 327.
Mr. Michael Lessmeier
State Farm Insurance
3000 Vintage Blvd. #100
Juneau AK 99801
POSITION STATEMENT: Supported SB 327.
ACTION NARRATIVE
TAPE 02-18, SIDE A
Number 001
SB 327-MOTOR VEHICLE LIABILITY INSURANCE
CHAIRMAN JOHN COWDERY called the Senate Transportation Committee
meeting to order at 2:22 p.m. and announced SB 327 to be up for
consideration.
SENATOR DAVE DONLEY, sponsor of SB 327, said a recent Alaska
Supreme Court decision in State Farm Mutual Auto Insurance versus
{indisc.] held that uninsured/underinsured motorist coverage
includes any punitive damages if the coverage for punitive
damages is not specifically excluded under the insured's
liability policy.
SENATOR DONLEY said he is very pro-consumer when it comes to
insurance and he could understand why a consumer would want a
windfall from punitive damages from his or her
uninsured/underinsured policy, but no public policy exists for
such activity, unless you're planning on successful subrogation.
He stated:
The whole intent of punitives is to deter bad action.
If your first party insurance is going to pay
punitives, there's no deterrence with the exception of
successful subrogation.
He said in this case, he agrees with the insurance companies, but
his concern, from the consumers' point of view, is that this will
raise the cost of coverage.
SENATOR DONLEY said this bill is intended to reverse that case
and clearly say that insurance companies don't have to provide
punitive damages coverage as part of uninsured/underinsured
coverage when they say they are not going to.
Additionally, Section 2 mandates an offer of medical coverage. He
believes it is important that people be given the option of
purchasing a primary health insurance policy. Medical insurance
is very good for people to have and it is good public policy to
encourage people to buy it, because it protects them. He said he
would be willing to give up the "each renewal" language in the
bill as long as the option of health insurance was made with the
initial offer. He added that insurance is the only area where
discounting is forbidden because it is important that insurance
agents take the time to explain everything to their customers. He
hoped they were doing that.
The other provision in the bill deals with expanding
comprehensive coverage to include the cost of replacing defective
or worn out safety belts in vehicles. Alaska statute mandates the
use of safety belts and since equipment wears out, the idea is to
allow 50 percent reimbursement for seat belt replacement from the
comprehensive insurance. He believes this would be good public
policy. He thought the insurance industry would whine about this
item not being a true part of comprehensive coverage.
SENATOR DONLEY said some provisions were added about
confidentiality of insurance records and they are supported by
the industry, but he would defer to the division to explain it.
Amendment C.1 clarifies current statutes on "UM" and "UI"
coverage. He stated:
Coverage shall be made only when a direct physical
contact between the insured and the underinsured motor
vehicle has occurred - and this is a problem that was
brought to my attention at one point. If you have a
chain reaction accident, number 1 here is an uninsured
driver, plows into number 2 and number 2 is propelled
into number 3. Well, you have no direct physical
contact between 1 and 3 and so there has been the
argument raised in the past that the uninsured UM/UI
doesn't cover you for this because this person had
insurance - they hit you - although it wasn't their
fault. You don't have a claim against this person,
because it really wasn't their fault. Right? They were
pushed into you by this uninsured driver. And this is
an effort to make it crystal clear - I don't believe
that people should be denied the protection of their UM
and UI because of this - but just to make it extra
clear, that's what the attempt is here - is to help
with this chain reaction type argument…
SENATOR ELTON noted the amendments had not been moved, but they
were addressed and he had a question about the amendment and the
bill.
SENATOR WARD moved to adopt Amendment 1, labeled C.2, and asked
for unanimous consent. There were no objections and it was
adopted.
SENATOR WARD moved to adopt Amendment 2, labeled C.1.
SENATOR ELTON objected to ask a question. He said he thought the
way to fix that problem is addressed on line 19 where it says
"may be made only where direct contact between the motor vehicles
has occurred." That language will remain in the bill and he
wasn't sure how the amendment fixes the situation.
SENATOR DONLEY agreed and said that Mike Ford, Division of Legal
Services, could explain it. He said he didn't want any clever
insurance lawyer thinking that they can avoid coverage just
because they're looking at this problem. He said:
I think they should pay in this circumstance, because I
think it's real unfair to deny coverage in this
circumstance. I want to make that real clear for the
record.
MS. SARAH MCNAIR-GROVE, Property Casualty Actuary, Division of
Insurance, said this was the first time she had seen this
language and she wanted to look at it before commenting.
SENATOR DONLEY said he would talk to Mike Ford again to see why
he thought this was a good fix.
SENATOR ELTON asked if it would be easier to not advance the
amendment now.
SENATOR DONLEY said that would be all right.
SENATOR WARD moved to withdraw his motion to adopt Amendment 2
(C.1) and asked for unanimous consent. There were no objections
and it was so ordered.
SENATOR ELTON said he didn't understand "successful subrogation."
SENATOR DONLEY explained:
In uninsured/underinsured coverage, this first party
insurance, you buy this insurance to protect yourself
against the losses incurred to you by a third party. If
an uninsured driver hits you, you've got insurance for
that. Your insurance company pays you. They now have a
claim against the person that hit you and that's called
a subrogation - where they can sue that person on
behalf of your claim that they paid - the court fees
they should have paid…
My argument on whether or not your insurance company
should pay you punitive damages that you were awarded
from that person who hit you is that it doesn't deter
that person at all, because they're not paying it. Your
insurance company is paying it. Right? And the only
exception to that might possibly be if you want to
think that your insurance company now has a claim for
the punitive damages they paid you on the court fees
that you have…
SENATOR ELTON said that made sense, but it seems if they want to
do that because it takes some of the costs out of the system and
they are doing that, one of two things could happen: either
insurance rates don't rise as quickly or they would drop because
those costs disappear from the system.
SENATOR DONLEY said this was a fairly new case that created the
problem and:
Hopefully insurance rates won't rise as quickly and
hopefully you'll deter people from retrenching in the
amount of insurance they're selling too, because one of
the dangers, of course, is the market would become so
unattractive that they just decide not to participate
in the marketplace.
MR. MIKE LESSMEIER, representing State Farm Insurance, said he
knew of one company that quit writing excess insurance because of
this problem. He noted it would basically require people to pay a
premium so they can collect punitive damages from someone else
under the guise of punishing them. He said it makes no sense at
all because they end up punishing themselves. He maintained:
We think that uninsured and underinsured motorist
coverage was created to compensate people from
uninsured and underinsured drivers and we need to get
back to that. We think this will have a positive effect
on losses…
SENATOR WILKEN asked if State Farm or other insurance companies
in Alaska track their annual losses or reimbursements due to
uninsured motorists.
MR. LESSMEIER replied that he was sure they do. To get a rate
approval from the Division of Insurance, they have to justify the
rate based on loss experience. He said he would be happy to get
information on why their rates have grown for the committee. He
indicated:
You look at State Farm last year - lost nationwide $5.1
billion - the worst loss ever. In Alaska we're not
doing much better. We, in [the] automobile insurance
market - as I understand it the reason that the cost
continues to go up is because you look at costs of
medical that continue to rise and the cost of repairing
automobiles has continued to rise. The issue with
respect to uninsured and underinsured premium coverage
that we have always struggled with, and I know Senator
Donley was here when we created this system, is that
that coverage has changed and evolved over the years
and it's great coverage in Alaska. And Senator Donley
has insured that it's great coverage, but there have
been things that have been tacked on to that coverage
by the courts…the [indisc.] case that created this
excess insurance issue - that was a huge payout for
State Farm and the simple fact is that frequency of
loss and severity of loss are what drive rates. And the
experience has not been good…
MR. LESSMEIER said it is impossible to eliminate uninsured
motorists. Massive bureaucracies have been created to try to do
that, but they can give each individual the ability to choose how
much protection they want to insure themselves for. Senator
Donley has created a system that he thought was the best in the
country, but it doesn't have anything to do with the frequency of
loss or the severity.
SENATOR WILKEN said he was interested in those numbers.
SENATOR ELTON asked if the losses are attributable to investment
losses or to what they pay out in claims.
MR. LESSMEIER replied that he understands the figure to be just
the loss.
SENATOR ELTON asked that a representative of the Division testify
on the bill as amended.
MS. MCNAIR-GROVE said that she believed the committee had a
letter from the Director of the Division in support of this
legislation. The medical expense coverage option is of some
concern because that would require a signed waiver on each
renewal. She questioned what would happen if the insured forgets
to send it back with their check.
SENATOR DONLEY asked her how important that is to the division.
He wouldn't oppose deleting on line 24, page 2, "and at each
renewal offer".
MS. MCNAIR-GROVE said she didn't believe it would do that. She
again questioned what the insurer would do if they don't get a
signed waiver on the renewal and whether they would automatically
supply coverage.
CHAIRMAN COWDERY asked if the division had any suggestions on the
subject of uninsured motorists.
MS. MCNAIR-GROVE said that they don't have a solution; the
coverage isn't very expensive, but the cost is increasing every
year.
MR. LESSMEIER added that the offer idea is a good thing, but
there is probably no way they can have a signed written offer
every time.
SENATOR WILKEN asked if, when one signs up for automobile
insurance, the agent would ask, "By the way, do you want to buy
medical insurance?"
MR. LESSMEIER said when a customer signs up for any automobile
insurance, the insurance agent should inform the customer that
under Alaska law, he or she has the right to buy uninsured and
underinsured motorist coverage at different levels. He thought
that people have to sign a waiver if they don't want coverage. He
said in the context of that discussion, the insurance agent would
tell the customer that he or she has the right to buy additional
coverage. That would be part of the initial offer and one would
sign one's choice. He said the offer would be made every six
months.
SENATOR DONLEY said right now there is no mandatory offering.
They are discussing whether the offer should be made initially or
at every renewal.
MS. MCNAIR-GROVE commented that just an offer would be fine with
the division.
SENATOR WARD moved to pass CSSB 327(TRA) from committee with
individual recommendations and the accompanying fiscal note.
There were no objections and it was so ordered.
CHAIRMAN COWDERY adjourned the meeting at 3:03 p.m.
| Document Name | Date/Time | Subjects |
|---|