House Committee on Business Affairs and Labor (02/24/2009)

Final
STAFF SUMMARY OF MEETING

HOUSE COMMITTEE ON BUSINESS AFFAIRS AND LABOR

Date:	02/24/2009	ATTENDANCE

Time:	12:45 PM to 01:28 PM	Balmer	X
		Bradford	X
Place:	HCR 0112	Gagliardi	X
		Liston	X
This Meeting was called to order by		Priola	X
	Representative Rice	Ryden	X
		Scanlan	X
This Report was prepared by		Soper	X
	Christie Lee	Stephens	X
		Casso	X
		Rice	E
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Insurance Industry Division of Insurance		- -

12:46 PM -- Insurance Industry

The committee was called to order by Vice Chairman Casso. Ellen Poole, Assistant Vice President of Government Relations, United Services Automobile Association, advised the committee that she and her panel would be talking about automobile insurance claims. She introduced Mike Hyland from State Farm Insurance, David Jenkins from Allstate Insurance, and Gary Schultz from the United Services Automobile Association.

12:49 PM -- Mike Hyland, representing State Farm Insurance, talked about bodily injury claims. He gave the example of an auto accident where a driver, the policyholder, runs a red light and hits another car. Mr. Hyland said if the driver who was hit files a claim against the policyholder, the insurance company will begin by contacting the policyholder and discussing the accident with him or her and will attempt to establish fault. If the driver admits to running the red light, his or her insurance company will pay the medical bills of the claimant. Mr. Hyland explained that the process is more complicated if the driver needs long-term medical care. He said the next step in the process is when the policyholder's insurance company attempts to reach a settlement with the claimant. Mr. Hyland mentioned that it is very rare that claims go to litigation. Once a settlement is accepted by the claimant, the insurer will notify the policyholder. Representative Soper asked whether claimants tend to go after more money if the person at fault has additional insurance and more money available and how they stop that from happening. Mr. Hyland explained that the insurance company tries to only pay claimants what is owed.

12:56 PM -- David Jenkins, representing Allstate Insurance, talked about physical damages. He talked about how vehicles are inspected after an accident and who inspects them. Mr. Jenkins said the goal of the insurance company is to bring the vehicle back to its pre-loss condition as quickly as possible. Mr. Jenkins talked about the industry standards they follow for repairs, including recommendations from the manufacturers and independent research companies. He explained that determining whether to repair a car or to total a car is an economic decision. Mr. Jenkins talked about the resources that are used to determine how much a car is worth, including the Kelly Blue Book and the newspaper and explained that insurers try to find the closest match to the car.

01:01 PM -- Gary Schultz, representing the United Services Automobile Association, talked about rates and how accidents affect them. He explained the rate making equation and that it is an attempt to predict the future. In order to determine premiums, the insurance company takes the expected losses and the expenses associated with doing business for the upcoming year. The insurance companies use past trends to predict future costs. Mr. Schultz stated that underwriting losses and gains are based on how well you predict the future. He gave the example of a company that looked at past trends and determined that it will need $100 in premiums for the following year to cover the projected expenses of the 10 people the company insures. Mr. Schultz said that the company could have everyone pay $10 dollars, but what if one person is 16 years-old and one is 45 years-old and has never had an accident? He said the 16 year-old should pay more because past trends show that they are known to have more accidents. He also explained that if you have an accident, you are more likely to have another one. So in response, the insurer charges the person who has had an accident more than a person who has not had an accident. He explained that they charge the person extra for about three years when the likelihood of the person having another accident goes down. Mr. Schultz explained that the additional money insurance companies collect after an accident does not cover the loss from the accident, but goes to the predicted costs for the upcoming year. He stated that the automobile insurance market is very strong and competitive in Colorado which gives the insurance industry an incentive to set accurate premiums. This is because the insurance company either sets premiums too high and becomes uncompetitive, or the insurance company sets them too low and they lose money.

01:07 PM

Representative Balmer asked about credit scores and whether any of the companies present at the hearing use them. Mr. Schultz stated that they do use them because they are highly predictive and if they were not highly predictive, they would not use them because using credit scores is very controversial. Representative Soper asked about the money that is left over after premiums are taken in and expenses are paid out that are placed in a rainy day investment. Ellen Poole responded and explained that those investments were normal in the 1990s, but there have been many changes since then that have resulted in sophisticated underwriting. She said that since the stock market crash in 2001, the reliance on these investments have dropped.

01:12 PM -- Division of Insurance

Colorado Insurance Commissioner Marcy Morrison introduced Peg Brown, the Deputy Commissioner of Consumer Affairs, Division of Insurance and distributed an organization chart of the division and three brochures from the division (Attachment A and B respectfully).

01:12 PM -- Peg Brown explained that she is the Deputy Commissioner of Consumer Affairs for property and casualty, life, and health insurance. She explained that consumers typically contact the division when they questions their insurance company or cannot get a hold of their insurance company. She said the division has a wide variety of brochures and publications available to consumers. Ms. Brown explained that a consumer can file a complaint with the division on-line or by mail. Once a complaint is filed, the division analyzes it to determine whether the division has jurisdiction, and if it does, then the division attempts to resolve the issue. Ms. Brown explained that if the insurance company is found to have done something wrong, the division can either take an enforcement action or send the complaint to the Compliance and Investigations Unit.

01:15 PM

Ms. Brown talked about the Annual Report of the Commissioner of Insurance to the Colorado General Assembly on Complaints Against Insurers for FY 2007-2008 (Attachment C). She pointed out that automobile insurance complaints are the most common the division receives which include disputes over the cancelation of a policy, a surcharge due to an accident they were involved in where they were not at fault, or their record is clean and the insurance company has the wrong information. Ms. Brown stated that the division took 25,000 phone calls from consumers and handled 4,500 complaints, and recovered $10 million for consumers last year. She talked about the top ten complaints from consumers that are provided in the report on page 16. Representative Balmer asked how many denial of claims complaints end up with the division advising the consumer that the insurance company is following the insurance contract. Ms. Brown directed the committee to page 13 of the report that illustrates the number of complaints where the insurance industry was found to be wrong.

01:19 PM -- Commissioner Morrison introduced John Postolowski, the Deputy Commissioner of Finance and Administration. Mr. Postolowski talked about the following sections in the Finance and Administration Unit:

Actuarial;
Corporate Affairs;
Financial Analysts;
Financial Examiners;
Producer Licensing;
Market Regulation;
Rates and Forms; and
Office Management.

01:26 PM

Insurance Commissioner Morrison talked about the recent issue of the federal government overseeing insurance that has been brought up and is being discussed in Washington, D.C. She explained that for the last 150 years insurance has been handled by the states and urged the members to follow the issue.

01:28 PM

The committee adjourned.