HD14 - Insurance Premium Increases Resulting From Not-At-Fault and Partially- At-Fault Motor Vehicle Accidents
Executive Summary: Legislative Request The State Corporation Commission's Bureau of Insurance was requested by the 1988 Session of the General Assembly to study the Issue of insurance companies' increasing premiums due to not-at-fault and partially-at-fault motor vehicle accidents. The study resolution assumed (1) there had been a dramatic Increase in automobile insurance premiums resulting from the recent Insurance crisis and (2) there had been an increase in insurance premiums due to not-at-fault and partially-at-fault losses. Rate Increases A review of the top 10 private passenger automobile insurance companies in Virginia indicated that the average of the annual automobile Insurance rate Increases over the past five years has been 3.8%. Statutory Requirements Under Virginia insurance law, no insurance company may charge points (add a premium surcharge) as a result of a motor vehicle accident unless the accident was caused either wholly or partially by the named insured, a resident of the same household, or other customary operator, except where the operator causing the accident is a principal operator insured under a separate policy. Insurers that charge points are required to notify the insured in writing and advise the insured that he has a right to appeal the decision of the insurer to the Commissioner of Insurance within 60 days of receiving the notice. Virginia insurance law also stipulates that a surcharge may not be applied for a period longer than 36 months and that the surcharge period may not begin later than 12 months from the date of the motor vehicle accident. Company Filings All rates and rules pertaining to point surcharges must be filed with the State Corporation Commission before they may be used. Many companies use similar rules in determining when a surcharge will be applied although there are variations among companies. Some companies base their decision to surcharge for an accident according to the insured's degree of fault and will not apply a surcharge unless the insured is at least 50% at-fault. Fault is sometimes determined according to whether the insured was convicted of a moving traffic violation in conjunction with the accident. Even when the insured is determined to be at fault, however, most companies have rules which stipulate that a surcharge will not be applied unless damages resulting from a motor vehicle accident exceed a certain dollar amount. This is usually set at $500 or less and varies according to each company's rate filings. When a surcharge is applied, the premium is generally increased for liability, medical payments, comprehensive, and collision coverages. Statutory Provisions of Other States A review of the laws of the 50 states revealed several regulatory approaches being taken including: 1. Not addressing the issue of point surcharges in the law; 2. Stating that a surcharge may not be applied if the insured is not-at-fault (this is the approach taken in Virginia); 3. Determining chargeability in terms of the insured's degree of fault in the accident (i.e., the insured must be 50% at-fault before a surcharge may be applied); 4. Specifying the conditions under which a surcharge may not be applied (i.e., if the car is lawfully parked when the accident occurs, a surcharge may not be applied); and 5. Specifying a dollar amount which damages must exceed before a surcharge may be applied. Consumer Complaints Consumer complaints involving point surcharges have escalated over the past three years. In approximately one-third of all such complaints received by the Bureau of Insurance since 1984, either the Bureau required the point surcharge to be removed or the company removed the surcharge voluntarily. In at least half of the complaints received, however, the Bureau determined that the surcharge was justified and, therefore, the company was not required to remove the point. Underwriting Decisions Affecting Premium Increases If a company is prohibited from surcharging for an accident because the insured was neither wholly nor partially-at-fault, the company may seek other means of increasing the insured's premium. A company may non-renew the insured's policy In the company's preferred program, and instead, offer coverage in its standard or substandard program with higher rates. New statutory provisions which were enacted during the 1988 General Assembly Session limit this practice to a certain extent; certain types of not-at-fault losses may not be used as grounds for non-renewal. Conclusion The State Corporation Commission concluded that the current regulatory scheme effectively monitors point surcharges for motor vehicle accidents. Any person aggrieved by the assignment of points may appeal the insurer's decision to the Commissioner of Insurance who is authorized to require the removal of these points if they have been improperly applied. |
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