Final
STAFF SUMMARY OF MEETING
AUTO INSURANCE SYSTEM
Date:
08/23/2005
ATTENDANCE
Time:
10:05 AM
to
04:03 PM
Cadman
X
Carroll M.
X
Place:
LSB A
Cerbo
X
Cloer
E
This Meeting was called to order by
Gordon
X
Representative
Coleman
McElhany
X
Tochtrop
X
This Report was prepared by
Wiens
X
Chris Ward
Veiga
X
Coleman
X
X = Present, E = Excused, A = Absent, * = Present after roll call
Bills Addressed:
Action Taken:
Interim Committee on Auto Insurance
Cheye Calvo
NCSL
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10:06 AM
Representative Coleman called the meeting to order. She introduced Cheye Calvo of NCSL
10:07 AM
Cheye Calvo introduced himself and discussed his position with NCSL. He expressed his goal to cover three items: (1) frame the issue of no-fault insurance in Colorado, (2) put Colorado's experience in context nationally, and (3) discuss auto insurance in other states. He provided slides to the committee (Attachment A). According to Mr. Calvo's testimony, Colorado's no-fault system was unique. Roughly 13 states have a system that mandates coverage, but many have a monetary threshold to sue for damages. He spoke in detail about Michigan, which he believes has the most true no-fault system. Michigan imposes severe tort restrictions, but provides no limit on covered benefits. He discussed how Colorado led the nation in increased auto insurance premiums over the 10-year period ending with 2002. He discussed combined ratios as one explanation for the higher-than-average increases in Colorado. He also showed data that indicated that Colorado auto insurers were still in a difficult financial position, even with the rapid increases in premiums. Colorado insurers actually lost money in 2001 and 2002, whereas the companies were making reasonable profits nationally.
Representative Cerbo asked about the return on investment for insurers. Mr. Calvo responded by talking about the broader picture for insurance companies. He mentioned the capital-intensity of the industry. He responded that property and casualty insurers tend to invest more in bonds, as opposed to the stock market. Since bonds are less risky than stocks, the data should not be heavily affected by investment income or loss.
10:26 AM
Mr. Calvo shifted to a discussion of personal injury protection (PIP) among the 14 states with no-fault (including Colorado). He noted that the most recent data is from 2002. He discussed the concept of a "pure" premium which excludes everything (i.e., administrative costs, etc.) EXCEPT the premium needed to cover losses. His presentation indicated little difference between the pure premium and the actual premium. In response to a question from Senator McElhany, Mr. Calvo discussed the rapid increase in the average amount claimed between 1999 and 2001. Colorado saw claims increases of 18%, 15% and 9% in those three years.
Representative Coleman asked about the ability of trauma centers to cover their costs from auto insurers and whether Mr. Calvo had done any work on the carve-out for traumatic injuries. He replied that he had not worked specifically on that issue, but he indicated his belief that PIP was probably subsidizing other health care.
10:41 AM
In response to a question from Senator McElhany, Mr. Calvo acknowledged that a more appropriate comparison for Colorado would be $100,000 in reimbursement, including both medical and rehabilitation. He closed his testimony by noting that Colorado has one of the most vibrant and competitive auto insurance markets. He said that Coloradans should expect to see reductions in premiums of roughly 20 percent. He noted that if those premiums have not yet fallen, he would expect them to. He also noted that there should likely be an increase in the number of insurers writing policies. He finally mentioned the difficulty of funding health care costs through an auto insurance system, suggesting that the committee contact Martha King to discuss the funding of trauma centers and other health care costs.
Representative Coleman asked Mr. Calvo to provide the committee with data about uninsured motorists in other states. Representative Cadman asked about insurance companies losing money between 1999 and 2002 and any work NCSL had done to compare the costs to see how much PIP may have been subsidizing other health care costs.
Mr. Calvo responded to additional questions about the profitability of insurance companies and data that may be available.
10:59 AM
The committee recessed.
11:05 AM
Murray Ogborn, Colorado Trial Lawyers Association (CTLA), testified to the CTLA's original support for retaining no-fault until the 2003 legislative session. He expressed the association's feeling that a return to no-fault might cause more problems. The CTLA's official position is wait-and-see. He noted that many people have not yet realized that the system for paying for auto accident injuries has changed. He suggested that, if a stopgap measure is necessary, the committee might consider a mandated medical payment insurance system. Senator Veiga asked about Mr. Ogborn's experience in Nebraska (a fault state) and whether he thought Colorado would approach Nebraska's stable experience with tort. He discussed the lien system in Nebraska while waiting for a determination of fault. Senator McElhany asked about the value of purchasing medical payment insurance coverage. Mr. Ogborn discussed his decision to purchase med-pay, based on his experience in Nebraska. He said he thought Coloradans would eventually start to purchase medical payment coverage. Representative Coleman asked about the filing of liens and the subrogation of liens.
11:20 AM
Jeff Ruebel, Colorado Defense Lawyers Association, gave his impressions about the previous testimony from the committee. He noted the inconsistency of recommending or mandating medical payments insurance coverage when people have insufficient health care coverage. He noted that the change in civil filings has not significantly changed with the repeal of no-fault. Representative Coleman asked specifically about the settlement of liens. He responded that health insurers have options for being reimbursed, but do not appear to be pursuing those options. He suggested that the committee look at perhaps an arbitration system for dealing with conflicts. Representative Carroll asked about the success of claims for lost wages. Mr. Ruebel responded that, while it is still early, it appears to him that such claims are being awarded. He closed with another recommendation for some sort of arbitration system to streamline claims. Finally, he suggested that the committee look at a priority system for paying claims.
11:35 AM
Elizabeth Sprinkel of the Insurance Research Council (IRC) introduced herself and provided a handout to the committee (Attachment B). She spoke about the surge in economic losses in Colorado under PIP. She contrasted Colorado's experience with that of Florida, Michigan, and New York. She noted that the Michigan data excludes the most seriously injured victims, such as those with permanent total disability. She noted that the economic losses increased despite no significant change in injury types, an increase in the number of people involved in accidents that did not suffer disability or lost wages, and a reduction in hospital admissions for auto accidents. Representative Carroll asked about the data supporting the conclusion that injury types did not change. Ms. Sprinkel responded that she used 19 injury categories and other data collected primarily by persons settling claims for insurance companies. She talked about increases in the number of chiropractor visits and charges. In response to a question from the committee, Ms. Sprinkel referred to her October 2004 report that was provided to the committee at its first meeting on July 27. She further explained the unbiased nature of the Insurance Research Council. The IRC collects and publishes the data, and it is available to anyone to use.
11:50 AM
Ms. Sprinkel noted the increased use of X-rays and an even greater increase in MRIs ordered. She also noted the difference in costs for X-rays and MRIs and the fact that the IRC collects data on medical practices without making a judgement about the appropriate treatment. Senator Tochtrop noted that most auto accident victims suffer soft tissue damage, as opposed to some other type of injury. Soft tissue injuries are more easily identified with an MRI than with an X-ray. Ms. Sprinkel noted that the data showed that the involvement of attorneys tend to increase the amount of time involved in settling a claim. In response to a question, she responded that economic losses tend to be higher with a lawyer, but payouts to claimants tend to be lower. In response to further questioning, Ms. Sprinkel provided data regarding the average economic losses and payouts when an attorney is involved and when an attorney is not involved.
12:09 PM
The committee recessed.
01:07 PM
Dr. Philip O'Connor, president of PROactive Strategies, Incorporated introduced himself to the committee. He noted his role as a former Insurance Commissioner for the state of Illinois and his original research on state-by-state comparisons of insurance regulation. He spoke at length about various regulatory methods for determining rates, drawing a specific contrast between "prior approval" and "file and use" and explaining that requiring prior approval does not measurably impact rates. He referred to two documents - a paper he wrote for the National Conference of Insurance Legislators, "Modernizing Insurance Rate Regulation" and a study published by Professor Scott Harrington (Attachments C and D). He also noted the risk of devoting resources to rate review instead of policing the industry. In response to a question, he testified that there is no relationship between no-fault st
a
tes and regulatory mechanisms. He referred to some of Ms. Sprinkel's data showing very little change on the distribution of benefits. He expressed a preference for minimum standards in state law, with respect to the type policies that must be offered, as opposed to being very prescriptive or detailed. He also noted the difficulty in educating consumers about new insurance regulation after 30 years of a no-fault system.
01:29 PM
David Snyder, American Insurance Association, testified to options and the funding "crisis" of trauma centers. He provided a handout to the committee (Attachment E). He described that funding difficulties for trauma centers are related more to issues other than auto insurance reimbursements, referring to a chart on page 4 of his handout. He talked about options for funding trauma centers. He mentioned proposed federal legislation to increase the reimbursement for emergency responders and rural ambulance services.
Mr. Snyder expressed a willingness to be a part of any solutions the committee might want to pursue. He noted the difficulty of any transition of this magnitude as well as the long-term challenges of establishing and maintaining an auto insurance system. Senator Wiens asked about how other states distribute moneys from fees collected for trauma services. Mr. Snyder discussed the importance of limiting the number of trauma centers.
01:52 PM
The committee recessed.
01:56 PM
The following people testified as a panel : Joy Keyser Pickar, State Farm Insurance; Dave Blattenburg, Allstate Insurance; and Valerie Kersowski, Progressive Insurance. Ms. Keyser Pickar provided handouts to the committee that showed State Farm's disclosure information for consumers that describe the changes in auto insurance (Attachments F, G, and H). Representative Carroll asked about training for insurance agents regarding advice to consumers about medical payments coverage. Ms. Keyser Pickar noted State Farm's 31% reduction in premiums following the transition to tort. In response to a question from the committee, she skipped over the rate data. She testified to a reduction in complaints and, in response to a question, explained the process for tracking consumer complaints. Some complaints are forwarded from the Division of Insurance while others are made directly from the company. Complaints are sorted into three categories: claims (including procedures, delays, denials, and settlements), underwriting (cancellations, delays, non-renewals, rates and premiums, and miscellaneous), and service (sales, marketing, and miscellaneous).
02:19 PM
Senator Wiens discussed the reduction in rates and asked about the change in the value of the policies offered. Ms Keyser Pickar responded that she gets more value for her health care premium than PIP or the optional medical payments coverage. The committee discussed the change in premiums compared to the change in coverage levels.
02:33 PM
Dave Blattenburg, Allstate Insurance, testified on his 22 years with Allstate, during which he worked almost exclusively in the claims department. Last year, his office handled 30,000 claims, including 3,500 involving injuries. In response to a question from Representative Carroll, Mr. Blattenburg testified to the process for filing claims.
02:49 PM
Valerie Kersowski, Progressive Insurance, testified that in the 2 years prior to the repeal of no-fault, Progressive increased rates several times by over 60 percent. This translated to $305 per vehicle. She acknowledged the difficulty in setting rates in anticipation of the transition, but explained that rates overall have come down by roughly 30 percent. Representative Carroll asked about the rate reductions. The reductions have included all liability coverage for injuries including bodily injury, medical payments coverage, and uninsured motorist coverage.
02:59 PM
In response to a question, Ms. Kersowski testified that credit scoring has had no affect on changes in rates following the transition from no-fault to tort. The panel members responded to a question about prompt payment of claims. Representative Carroll asked about how long it takes, on average, to determine fault. Mr. Blattenburg offered to try to find that information.
03:08 PM
The following people testified as a panel: Michelle Colaizzi, Allstate Insurance; Carole Walker, Rocky Mountain Insurance Information Association (RMIIA); and John Baer, State Farm Insurance. Carole Walker provided a handout to the committee (Attachment I). She also noted that she provided copies of the Insurance Information Institute's 2005 Fact Book to members of the committee (Attachment J).
03:13 PM
John Baer testified about being a State Farm agent for 10 years. He noted that 2003 was the culmination of several difficult years of rate increases for his policyholders. He testified that several policyholders contacted him to ask about how much they would save by dropping PIP. He told these policyholders to look into adequate health coverage or optional medical payments coverage if they had no health care coverage.
03:24 PM
Representative Carroll posed the following questions to the members of the panel:
Did you tell consumers that passengers in their vehicles are no longer covered?;
How much guidance did your corporate office give you in determining information that should be provided to consumers?
03:27 PM
Michelle Colaizzi, Allstate Insurance, testified to the direction from corporate headquarters about informing consumers of the changes. She noted that RMIIA provided clear information that helped. Both Mr. Baer and Ms. Colaizzi responded to a question about people purchasing medical payments coverage. Senator Wiens asked about a scenario in which the purchase of medical payments coverage was required, unless the purchaser could prove that he or she had health insurance.
03:47 PM
Senator McElhany asked about the distribution of health insurance payments for trauma injuries not related to auto accidents. Ms. Walker explained that it is very difficult to obtain such information, but she offered to help.
03:53 PM
Mr. Reiner Kramer, Doctor of Chiropractic Medicine from Franktown, testified on Evidence Based Medicine and Outcomes Management. He provided a handout to the committee (Attachment K).
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04:03 PM
The committee adjourned.